The Science of Weighing and the Weighing of Science
New Image Global, Inc. v. United States is the sort of case we do not often see from the Court of International Trade. For starters, it involves excise taxes on tobacco rather than customs duties. Second, the challenge relates to Customs and Border Protection’s laboratory methodology. In the end, there is nothing groundbreaking here. It is, however, a good reminder that there are remedies available in the Court of International Trade that go beyond refunds for incorrect classifications. It also illustrates that pleadings matter. Finally, the case gives me an opportunity to go on a rant about the importance of good science in the courtroom and elsewhere.
The tax at issue is applicable to tobacco products and is assessed based on weight. The plaintiff imported tobacco “wraps,” which are tobacco products used to wrap other tobacco as cigarettes or cigars. The wraps as imported were packaged to retain moisture to let them be pliable enough to use as wrappers and also contained certain volatile agents for flavoring and other purposes. One such purpose appears to be producing a smoke that tastes of chicken and waffles.
"Royal Blunts" appears to be a brand name for New Image Global products.
CBP investigated potential underpayments of excise tax by New Image and decided the check the weight of some imports. The first time it did so, CBP removed the wraps from their packaging and let them dry for 24 hours. This direct method of weighing the product found the wraps to have an average weight of 0.71 grams. Subsequently, CBP modified its methodology to weighing the entire package as imported and subtracting the weight of the packaging. This methodology preserves the moisture and volatiles, meaning the result will be a heavier wrap. The indirect method found the weight to be average 0.915 grams. That means that New Image had under-reported the weight and underpaid the excise tax on entries that reported the weight as 0.75, based on the invoice description.
CBP attempted to collect the unpaid tax and New Image protested. CBP denied the protest and New Image filed a summons in the Court of International Trade.
There is an initial procedural issue to address. Plaintiff moved for summary judgment arguing that it had established as a matter of law and with no material facts in dispute that it was entitled to a refund of the excess taxes paid. The Government noted that the position taken in the motion did not align with the facts as initially asserted in the complaint. In its motion for summary judgment, the Government addressed the claims raised in the complaint. This raises two issues. First, the claims Plaintiff raised in the complaint that were not argued in the motion might be waived. Second, the arguments Plaintiff raised in the motion that do not correspond to claims in the complaint might not properly be before the Court.
For purposes of this post, I am not going to detail the differences between the complaint and the motion. Just understand that there is a disconnect. Regarding claims raised in the complaint but not raised in the motion, the Court noted that the Plaintiff also failed to respond to those arguments when they were addressed in the Government’s motion. Thus, the Court found Plaintiff had waived them.
Regarding new arguments first raised in Plaintiff’s motion for summary judgment, the Court noted that CIT Rule15(b)(2) allows new issues to be “tried” when the parties consent either expressly or by implication. Because this is not a trial but a motion for summary judgment, there is a question of whether Rule 15(b)(2) applies. On the one hand, a trial is a specific thing and this is not a trial. That would indicate the Rule is inapplicable. On the other hand, the Court is working to resolve the matter and maybe that is all that “tried” means in the context of the Rule.
It turns out that no prior CIT or Federal Circuit case has resolved this question. There is, however, a lot of law from other federal courts on the corresponding Federal Rule of Civil Procedure. The Court chose to follow the majority rule and apply Rule 15(b)(2) in the summary judgment phase.
That leads to the question of whether the Government had consented to resolving the newly raised arguments. The Court noted that the Government had the opportunity to move to strike the new arguments and chose not to do so. Furthermore, the Government had fair notice and opportunity to respond to the new arguments. Together, according to the Court, that constitutes an implied consent.
That brings us to the merits. Did CBP act within its authority when it changed the weighing methodology to calculate the excise tax owed?
The gist of Plaintiff’s argument is that by not letting the moisture and additives evaporate from the tobacco, Customs improperly applied the tax to material that is not tobacco. The Government, on the other hand, noted that IRS practice has been to include filters and mouthpieces in the taxable weight because they are integral parts of the finished product. A similar conclusion was reached in a ruling issued by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”). Using the indirect weighing methodology is also consistent with Customs’ practice of assessing duties and taxes on products in their condition as imported (not as dried out 24 hours later).
The Court found that the moisture and additives are part of the what makes the tobacco wraps suitable for their intended purposes. The additional weight comes from components (e.g., chicken and waffle flavoring) that are essential to the final product and, therefore, are part of the taxable weight.
Next, Plaintiff’s made the more direct argument that CBP’s change in methodologies was a results-oriented decision aimed at increasing New Image’s tax liability and that the indirect methodology is not scientifically valid.
On the first point, the Court found, essentially, that CBP was just trying to get the right weight, even though it was clear that the weight would be greater than under the previous methodology. There is nothing inherently wrong with CBP reevaluating its testing methodology in light of guidance from the TTB. Had CBP not done so, the result might be an unintended difference in the tax treatment of domestic product weighed by TTB and imports weighed by CBP.
Finally, we get to the question of whether indirectly weighing tobacco is a scientifically valid approach. Recall that CBP’s methodology was to weigh the entire package as imported. It then removed and weighed the packaging. By subtracting the weight of the packaging from the total, CBP derived the taxable weight of the tobacco.
When Customs cases involve the scientific validity of a testing methodology, the Court looks to factors established in a Supreme Court case called Daubert v. Merrill DowPharmaceuticals, which addressed the admissibility of scientific evidence. Under Daubert, the Court is to act as a gatekeeper to weed out testimony and other evidence that is not supported by basic science.
In my head, this is a big deal legal issue that has far greater impact in the district and state courts than the CIT. It comes up often in personal injury, medical malpractice, and products liability cases. The point of Daubert is generally to prevent junk science and biased “experts” from swaying the jury with scientific sounding nonsense.
Think about what is now euphemistically called “vaccine hesitancy.” The entire notion that vaccines cause autism and related conditions was never the consensus of scientific opinion and is fully discredited today. Daubert would prevent the discredited evidence from getting to a jury. On the other hand, in the unlikely event some new evidence comes to light that supports the proposition that vaccines are unreasonably dangerous, it could be admitted as evidence if it meets the Daubert criteria.
Talcum powder is in the legal news today because there is a lot of litigation linking it to ovarian cancer. There is, however, scant scientific evidence linking the use of powder to cancer. There is some. A good survey is in this Washington Post article. The question is whether that evidence is sufficiently reliable to go to a jury and whether it is presented with appropriate context. Sadly, there is always a risk of a woman getting ovarian cancer. The legal question is whether a plaintiff can prove by a preponderance of the evidence that using powder caused a particular case of cancer. Under Daubert, an expert should not be permitted to testify on this without showing, among other things, that the evidence has been subject to peer review, the known or potential error rate, and that it is accepted in the scientific community. This last factor is where I question what is happening in the talc cases, but I admit I have not been in those courtrooms and do not have a fully informed view on what was presented.
How we consume and evaluate scientific information is important in many aspects of our lives. It impacts whether we waste money on homeopathic medicine, use genetic technology to efficiently grow crops and livestock to feed the world’s growing population, or take action to combat global climate change. Think about Daubert whenever you see claims of miracle cures, scaremongering articles on genetically modified foods, or other claims that simply seem too good (or bad) to be true. Critical thinking is a learned skill and Daubert provides a reasonable basis from which to start. You’ll need to do some digging to test the claim, but there are usually sources to help. Personally, I give extra weight to information from universities (.edu) and government agencies (.gov) as a way to sort through the motivated reasoning of companies making claims to support their own commercial interests.
In this case, the indirect method of weighing tobacco is consistent with a standard methodology of the U.S.Pharmacopeia and National Formulary, which may not be peer reviewed but is published. Evidence indicated that USP is an organization that sets validation standards. The Court also reviewed the error rate in Customs’ testing and found the results to be steady. Based on this review, the Court found the methodology to be valid.
Based on all of the forgoing, the Court found that New Image failed to show that Customs’ methodology was inconsistent with the law. Thus, it granted summary judgment in favor of the Government, which seems entirely reasonable.
What may be unreasonable is that I milked this for nearly 1700 word.