United States Court of Appeals for the Federal Circuit

Case No. 22-1226

Before the Federal Circuit in Royal Brush Manufacturing, Inc. v. United States, Court No. 2022-1226 (August 4, 2023), was appellant Royal Brush Manufacturing’s (“Royal Brush”) appeal from a final decision of the CIT sustaining Customs determination finding that Royal Brush was transshipping pencils from China. Royal Brush challenged under the due process clause of the Constitution the process employed by CBP which led to the determination which the CIT sustained. For the following reasons the Court remanded the case back to the CIT.

The court reviewed Royal Brush’s argument that CBP relied on the redacted information in the Attaché Report and Verification Report, which deprived it of due process under the Fifth Amendment of the Constitution. The court noted an immutable principle of due process is “where governmental action seriously injures an individual, and the reasonableness of this action depends on the fact findings, the evidence used to prove the [g]overnment’s case must be disclosed to the individual so that he has an opportunity to show that it is untrue.” The court was unaware of any other courts holding that business information is exempt from disclosure to regulated parties in administrative proceedings brought against them. The government’s refusal to provide confidential business information is unpersuasive and any information that needs to be redacted can be done through a protective order. The court found that CBP relied on the confidential information and photographs to support that Royal Brush was “evading duties by transshipping Chinese pencils through the Philippines.” The court noted that Royal Brush did not get access to the confidential information, because on remand from the CIT, CBP input “number” or “no” to replace the redacted information. As for the redacted photographs, CBP argued that based on “observations and photographs, [it] unequivocally demonstrates repackaging of Chinese pencils into boxes labeled as made in the Philippines and destined for the United States.” Royal Brush did not get access to the photos, but received a broad description of what the photo showed. The court held that “CBP relied on factual information that was not provided to Royal Brush to determine that Royal Brush had evaded duties. This … is a clear violation of due process.” The court further discussed that CBP has the “authority to utilize protective orders in appropriate circumstances” and the Trade Secrets Act will bar the information from being released. CBP can narrowly release information and photographs to Royal Brush without “comprom[ising] the trade secrets.”

As such, the Federal Circuit remanded this case to the CIT with further “instructions that CBP provide Royal Brush with the redacted information and give it opportunity for rebuttal.”

Case No. 22-1832

Before the Federal Circuit in United States v. Katana Racing, Inc., DBA Wheel & Tire Distributors, Case No.: 2022-1832 was the Government’s appeal of the Court of International Trade’s (“CIT”) dismissal of its action against appellee Katana Racing for unpaid customs duties and “fees pursuant to Tariff Act of 1930, 19 U.S.C. § 1592(d).” At the CIT Katana filed a motion to dismiss arguing three main points, (1) “the government’s complaint should be dismissed for failure to state a claim because Customs never found a violation of 19 U.S.C. §1592(c)”, (2) “the complaint should be dismissed under CIT Rule 12(b)(6) because Customs was required to exhaust the administrative procedures set forth in 19 U.S.C. § 1592(b) before it could determine a violation of § 1592(a) occurred”, and (3) “the government’s suit was untimely and should be dismissed under CIT Rule 12(b)(1) because Katana revoked its final waiver of the statute of limitations.” The CIT affirmed Katana’s argument and dismissed the suit. However, For the following reasons, the Federal Circuit reversed and remanded this case to the CIT for further proceedings.

The Court of Appeals for the Federal Circuit noted that “the statute of limitations under 19 U.S.C. § 1621 is not a jurisdictional time limit.” But rather, “an affirmative defense that can be waived … either by not raising it or by agreeing before trial not to assert it.” The court relied on the precedent in United States v. Inn Foods, Inc., 383 F. 3d 1319, 1322 ,“a statute of limitations waiver is a consensual extension of the limitations period and serves to preclude the defendant from raising the statute of limitations as an affirmative defense.” This court held that “the CIT erred in dismissing the government’s suit for lack of jurisdiction under CIT Rule 12(b)(1)”. The court outlined permissible and impermissible arguments on remand (1) Katana will be permitted to raise an affirmative defense that the third statute of limitations waiver was void, (2) any and all defenses to the government’s claim for unpaid duties. But, (3) Katana cannot argue that “Customs was required by statute to follow the penalty assessment procedures in 19 U.S.C. § 1592(b).” The court said that administrative procedures were not statutorily required since a penalty was not assessed here. However, according to 19 C.F.R. § 162.79b, written notice to the person for the liability for the actual loss of duties, taxes, and fees or actual loss of revenue is sufficient. The case was reversed and remanded to the CIT for further proceedings.