United States Court of International Trade
Court Granted and Denied in Part Defendant’s Motion to Dismiss
In Fedmet Resources Corporation v. United States, Court No. 14-297 (June 26, 2015), Plaintiff Fedmet Resources Corporation (“Fedmet”), a U.S. importer, contested decisions by U.S. Customs and Border Protection (“Customs” or “CBP”) requiring Fedmet to post 260.24% ad valorem single transaction bonds (“STBs”) to obtain release of Fedmet’s imported merchandise. The merchandise at issue, magnesia carbon bricks (“MCBs”) that Fedmet declared upon entry to be products of Vietnam, was the subject of three consumption entries that Fedmet made at the port of Cleveland, Ohio in late 2014. The 260.24% ad valorem duty rate upon which Customs based its bond requirement is the sum of the deposit rates Customs applied to effectuate an antidumping duty order (236%) and a countervailing duty order (24.24%) on imported MCBs from the People’s Republic of China (“China”). After commencing this action, Fedmet posted 260.24% single transaction bonds for two of the entries at issue in this litigation, each of which was made on October 21, 2014. In response, Customs has released the merchandise on those entries into commerce.
Defendant moved to dismiss Count I of Plaintiff’s complaint, where Plaintiff posted the required bond on two of the three entries. In Count I of its Second Amended Complaint, Fedmet claimed that the magnesia carbon bricks on the October 21, 2014 entries were produced in, and are products of, Vietnam and that CBP’s requirement that Fedmet post 260.24% single transaction bonds on those entries based on the AD and CVD orders, therefore, “is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Second Am. Compl. ¶ 25. Because Fedmet posted the single transaction bonds and obtained release of the merchandise, Defendant argued that any issue as to the bonding requirement on the two October 21, 2014 entries was now moot and that the court therefore lacked jurisdiction under the case and controversy requirement in Article III of the U.S. Constitution. The court agreed. From the facts, there was no relief the court could grant on the Count I claims which could actually benefit Fedmet. These facts indicated that Fedmet would not receive from the surety any refund of the lump sum premium payment were the court to order Customs to cancel the two bonds, and plaintiff alleged nothing to the contrary. Fedmet did not establish facts from which the court could conclude that the claims comprising Count I of the second amended complaint present a live case or controversy. The court dismissed the Count I claims as moot.
Defendant moved to dismiss Count III on the ground that the decision complained of, which defendant describes as a “User Defined Rule (UDR),” was not a “final agency action” as required for judicial review under the APA, (citing 5 U.S.C. § 704 ). According to defendant, the UDR is “a targeting tool employed by CBP” and not a “final agency action on a particular entry or importation and it is not a final decision on bonding.” Citing regulations, Defendant argued that requiring single transaction bonds is authority vested in the port director to require additional security. According to Defendant, it was not a decision on a particular entry and had no effect on the entry or release of a specific entry. However, the court disagreed. The court held that the UDR was specific to Fedmet and identified the class or kind of merchandise at issue in this litigation as well as the dates during which the UDR is in effect (September 6, 2014 to September 30, 2015). It contained a paragraph under the title “Instructions to Officer,” a title indicating that the UDR is intended as a directive rather than as an advisory notice. The language of the paragraph under this title further supported an interpretation that the UDR was a directive by containing the words “STB require before release” and by referencing “ADCVD duties,” i.e., antidumping and countervailing duties. Thus, the court denied Defendant’s motion to dismiss.
As for Plaintiff’s partial motion for judgment on agency record, Plaintiff claimed Customs exceeded its authority under Section 623 and the aforementioned regulation, 19 C.F.R. § 113.13(d), when it required a 260.24% bond as security for antidumping and countervailing duty liability as a condition of release of the magnesia carbon bricks on the December 2, 2014 entry. Customs failed to make a reasonable determination that the single transaction bond was necessary for the December 2 entry and instead acted arbitrarily and capriciously.
Further defendant did not determine the actually country of origin of the MCBs in the subject entries. Defendant concedes that Customs, in imposing the bond requirement, did not determine the country of origin of the MCBs on the December 2, 2014 entry, or on any other of Fedmet’s entries. The court concluded that the decision to require a single transaction bond as a condition of release of the December 2 entry was “arbitrary and capricious” within the meaning of the APA, 5 U.S.C. § 702. That decision was not supported by a satisfactory explanation, did not rest upon “‘a rational connection between the facts found and the choice made,’” and was not made according to an examination of “the relevant data.” Defendant raised various arguments as to why the court must sustain the decision to require the additional security for the December 2 entry. None of these arguments convinced the court. In rebutting plaintiff’s argument that Customs failed to make an origin determination, defendant argued that the court should sustain CBP’s decision because it was not necessary for Customs to determine that the goods on the December 2 entry were of Chinese origin before requiring the 260.24% single transaction bond. But here, the court need not decide the question of whether Customs erred in failing to base its decision on an actual determination of country of origin. Instead, the court must decide whether the decision Customs made under 19 U.S.C. § 1623(a)—that the single transaction bond was “necessary for the protection of the revenue”—was, on this administrative record, sustainable under the “arbitrary and capricious” standard of the APA. Given the facts, the court did not sustain Customs’ decision and held the requirement of a 260.24% single transaction unlawful.
Finally, plaintiff had not met the standard for issuing injunctive relief. Accordingly, the court ordered additional procedure concerning the form of remedy to be granted upon the claim stated in Count II of the second amended complaint.
Customs Perfected 19 USC §1592 Claim Against Importer; Successor Liability to be Determined
Customs properly perfected a “negligence” penalty claim against an importer of stone polishing machines, the U.S. Court of International Trade recent ruled, it dismissing a motion for summary judgment regarding the claim. However, whether the defendant importer was subject to suit as a “successor” of the importer of record involved questions of fact requiring trial.
In United States v. CTS Holding, LLC, Slip Op. 15-70 (June 30, 3015), the importer claimed that while the prepenalty notice issued to it stated a claim based on negligence, the penalty notice did not, merely containing the statement “COMMERCIAL FRAUD”. The Court held that the inconsistency did not invalidate the penalty notice, holding that the law and regulations required the penalty notice only to state changes to information appearing in a prepenalty notice, and that the defendant was fairly on notice that it was facing a claim for a negligent violation of Section 592.
In one interesting footnote, the Court stated that “Section 1592 does not provide any administrative process for imposing lost duty claims,” and concluded that Customs “need not exhaust administrative remedies” before bringing a lost duty claim. However, since proving a violation of Section 592 is a condition to collecting “withheld duties” under 19 USC §1592(a), it is unclear how a withheld duty claims could be uncoupled and successfully prosecuted from a penalty claim.
On a second issue, the Court denied summary judgment on a motion to dismiss the defendant, CTS Holding, holding that triable issues of fact existed concerning whether CTS was a “successor” to TJ Ceramic tile, the importer of the stone polishing machines. Citing Section 5 of the Dictionary Act, 1 U.S.C. §5, which provides that the term “company” or “association” “shall be deemed to embrace successors and assigns of such company or association”, the Court noted that the “persons” subject to Section 592 had been interpreted to include corporations. Whether Michigan State law or Federal common law is used, there were numerous indicia that CTS was a mere “continuation” of TJ, the court noted. But there were disputed issues of fact that a jury would need to decide, hence the court declined to enter summary judgment.
United States Court of Appeals for the Federal Circuit
Prepayment of Disputed Duties Remains and Mandatory Requisite to Invoking CIT’s “Protest” Jurisdiction, Court Rules.
In the latest case to shut the courthouse door to aggrieved importers, the Court of Appeals for the Federal Circuit has upheld a Court of International Trade decision which dismissed an importer’s challenge to $35 million in disputed duty bills, on the ground that the importer, which did not have the money, had failed to pay the duties before initiating suit.
The decision in International Customs Products Inc. v. United States, No. 2014-1644 (June 29, 2015) likely brings to a close the importer’s decade-long battle against Customs, which began when Customs disregarded a binding ruling concerning the classification of the importer’s “white sauce”, and assessed duties 2400% higher than those specified in the ruling. In the years that followed, International Customs Products, Inc. (“ICP”) would win an action affirming that Customs’ disregard of the ruling was unlawful, and just last week, recovered attorney’s fees against the government, whose litigation position was deemed “not substantially justified.” But having ruled in the importer’s favor on one entry, the CIT declined to hear the importer’s case disputing $35 million in duties on 11 additional entries, since the importer did not satisfy the statutory requirement of paying duties before filing suit.
The duty payment requirement was Constitutional, the Court said, holding that ICP had no constitutional right to maintenance of a rate of duty. [Whether the ruling gave ICP a property right in maintenance of a rate of duty was never discussed]. Having already rejected ICP’s efforts to invoke the CIT’s “residual” jurisdiction to challenge the revocation of its ruling, the court once again (!) repeated its decades-old rule that the CIT’s residual jurisdiction can never be invoked if the case could be brought under any other provision of the CIT’s jurisdiction. A litigant’s inability to pay the duties does not excuse it from following this rule. [The CIT had previously noted, and lamented the fact that, unlike other taxpayers, importers have no pre-payment method for challenging assessments in court].
So, is ICP doomed? Perhaps not. In court, the government had conceded that it had no defenses to ICP’s claim to cancel the duty bills. The Federal Circuit noted that ICP’s claims could be raised as defenses in any action by Customs to collect the duties. [Whether Customs, its litigation position having already been deemed “not substantially justified”, has the chutzpah to file such an action remains to be seen]. On the other hand, the outcome of the case should be alarming to importers, as it indicates that if Customs hits them with bills they cannot pay, they have no way to voice their positions, except as defendants.