When is a Protest Allowed?

Lawyering is sometime a creative endeavor. As regulatory lawyers, that does not happen often enough. We rarely get the satisfaction of helping individuals resolve issues that impact their personal liberty or property. That’s OK. I am perfectly happy without a lot of human drama in my practice. On the other hand, I do enjoy stretching my creative lawyering skills.

In Erwin Hymer Group North America, Inc. v. United States, counsel for the plaintiff probably had some fun dealing with the issue presented. A reasonable way of describing what happened is this: Customs erroneously approved a protest that should have been suspended. When it failed to pay a refund on the protested entries, Hymer sued. Hymer’s argument comes done to the ancient proposition of school-yard jurisprudence “No take backs.”

As with all these procedural cases, the facts matter. When Hymers filed its protest, there was litigation already pending in the Court of International Trade on a similar question. Hymers asked Customs and Border Protection to suspend action on the protest until that case was decided. CBP agreed. The relevant CIT case was then stayed pending the outcome of a different case. That question was discussed here. Someone at CBP received Hymen’s protest, did some level of review, and checked the “Approved” box. Then, CBP sent the approved protest back to Hymer. Shortly thereafter, CBP noticed its error and let Hymer know that the protest was still in suspended status. In other words, CBP said “ignore that check mark, we are still withholding decision as you requested.”

Language also matters here. The protest form uses the word “Approved.” Technically, what happens to a protest is that it is “allowed” or “denied.” Hymer’s position is that “approved” means “allowed.” That remains is the core of this whole debate.

When Hymer sued, it faced a jurisdictional question. Normally, litigation about a protest challenges a denied protest. The Court of International Trade has exclusive subject-matter jurisdiction to decide challenges to denied protests. 28 USC 1581(a). But that section says nothing about lawsuits arising out of approved (or allowed) protests, such as this one trying to force Customs and Border Protection to pay a refund. If 1581(a) is not applicable, or does not provide adequate relief, then 1581(i) gives the Court “residual jurisdiction” to decide the case. That is how the CIT proceeded.  As a side note, the CIT held that CBP was not obligated to pay the refund because a protest is not finally “allowed” until CBP reliquidates it.

Hymer appealed. On appeal, neither party raised the jurisdiction question. Nevertheless, the Federal Circuit saw it as an issue and ordered that it be addressed. That did not go well for Hymer.

According to the Federal Circuit, the CIT lacked jurisdiction to decide the case—at least when it did.

The starting point for this analysis is section 1581(a), which says:

The Court of International Trade shall have exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930.

Remember, this protest was marked approved. Hymer just wanted to get paid. On its face, 1581(a) does not seem to apply.

In contrast, 1581(i) says: 

In addition to the jurisdiction conferred upon the Court of International Trade by subsections (a)-(h) of this section and subject to the exception set forth in subsection (j) of this section, the Court of International Trade shall have exclusive jurisdiction of any civil action commenced against the United States . . . that arises out of any law of the United States providing for—

(1)  revenue from imports or tonnage; 

. . .

(4) administration and enforcement with respect to the matters referred to in paragraphs (1)-(3) of this subsection and subsections (a)-(h) of this section.

The law surrounding CIT jurisdiction has long been settled that subsections (a) and (i) are mutually exclusive. [Note to lawyers: Yes, I know the history of Harbor Maintenance Tax and jurisdiction, even that can be reconciled.] If the plaintiff can proceed under (a), it needs to do so. The only exception is where a protest would be manifestly inadequate. In that limited circumstance, the plaintiff can go directly to court.

The Federal Circuit reasoned that if the protest remains suspended, the plaintiff has a way to proceed under (a). First, it can wait until CBP takes final action on the protest. CBP might even approve the protest, making all this moot. If CBP denies the protest, then Hymer can file a suit on the merits in the CIT. If Hymer does not want to wait, it can request that CBP act immediately through a request for accelerated disposition. 19 USC 1515(b). That would most likely force CBP to deny the protest, in which case Hymer could get into Court under 1581(a). Either way, Hymer had an adequate way to secure relief under 1581(a) and the CIT was wrong to proceed under 1581(i).

Built into that analysis is the mostly unstated premise that CBP still has authority to act on the protest after it sent the apparent approval to Hymer. The CIT addressed this directly when it held that an “Allowance” is not final until the entry is reliquidated. Prior to that point, CBP can change its decision.

The Federal Circuit took a different view. Even assuming that checking the approved box and notifying the importer of the decision constitutes an allowance, the Federal Circuit stated that Customs has “inherent authority” to reconsider the allowance and to return the protest to suspended status. This conclusion is not necessary to the determination that the CIT lacked (i) jurisdiction and probably counts as dicta. On the other hand, it also has the potential to lead to interesting future litigation.

If CBP has inherent authority to reconsider its decisions, can it now reconsider any allowed protest? Reliquidation is statutorily final, so it would seem that CBP only has that inherent authority until the entry subject to the allowed protest is reliquidated. That is essentially what the CIT held in this case.

What about a denied protest? Currently, the law allows CBP to void the denial of a protest that was contrary to instructions, which is a pretty limited exception. 19 USC 1515(d). Does the inherent authority of CBP allow it to void a denial that is just plain wrong, without forcing the protestant to file a summons in the CIT? If this dictum is to be believed, it would appear to be the case. That is a potentially good—and possibly unanticipated—outcome of this case.

As for Hymer, I assume it either can’t win as a result of the CAFC decision in Pleasure-Way or that it will win its protest. If not, it seems to now be teed up for another round of CIT litigation on the merits. I also understand that the strategy adopted in this case was a smart effort to jump past the merits. Unfortunately, as smart as that was, it did not work.