Results for Litigation

Reasonable Efforts to Confer are More than Short Emails

November 01, 2018
Things continue to happen in the world. Here is one:

U.S. v. Great Neck Saw Manufacturers (18-144)

This is one of the rare discovery disputes that produced a written opinion from the Court of International Trade. The underlying case involves an effort to collect a $1 million penalty on approximately $307 thousand in unpaid duties. As per the usual course of action, the government served on defendant requests for production, interrogatories, and requests to admit. Citing the large number of entries, GNSM requested an extension to respond. Five days after the extended period, GNSM provided a response that did not address the entire request. In the response, GNSM noted the difficulty of gathering the information on approximately 6500 entry lines, the need for client confirmation, and its inability to produce some information. Four weeks later, the government inquired as to the status of the remaining request. After some additional production and additional expressions of effort by the defendant, the Government filed a motion to compel production.

The interesting question raised here is not whether the defendant failed to cooperate in discovery. Rather, the question on this motion to compel is whether the plaintiff sufficiently satisfied the requirement of CIT Rule 37 to confer with the defendant regarding its requests. This requirement is intended to keep this kind of dispute between the parties and prevent it from getting to the point of a motion to compel. And yet, here they are.

According to the Court:

Plaintiff would have the court believe that the Government did enough to satisfy its burden to confer via its exchange of emails. The difficulty for Plaintiff is that its emails are minimal in length. The requirement to confer is not met by email exchanges that are little more than perfunctory and simply restate Plaintiff’s demands that GNSM fulfill its discovery obligations. . . . Furthermore, “requesting or demanding compliance with the requests for discovery,” or “simply showing that the discovery in question was requested more than once” is not enough to satisfy Plaintiff’s duty to confer.

At the same time, defendant has not fully responded to the discovery requests and has not adequately stated its objections.

As a result, the Court denied plaintiff's motion without prejudice. That means the motion can be renewed at a later date. In the meantime, the Court also ordered the parties to meet in person to confer in an effort to resolve the dispute.
Reasonable Efforts to Confer are More than Short Emails Reasonable Efforts to Confer are More than Short Emails Reviewed by Unknown on November 01, 2018 Rating: 5

GSP Refund Claims Denied

October 15, 2018

In other news, the Court of International Trade has dismissed a claim seeking refunds of duties paid while GSP was lapsed. The case, Industrial Chemicals Inc. v. United States involves 65 entries on which the importer paid duties for goods that would have been duty-free if the Generalized System of Preferences was in effect. When GSP was renewed, the importer had a statutory 180-day period (ending December 28, 2015) in which to make a claim. Due to some undefined misunderstanding between the importer and its customs broker, the claim was not made until February 2, 2016. Customs promptly denied the request as untimely. The importer filed a protest challenging . . . well, something. Customs and Border Protection denied the protest and the importer sued in the Court of International Trade.

In the CIT, the United States moved to dismiss for lack of subject matter jurisdiction. There is some ambiguity about the plaintiff’s theory. The protest might be directed at the original refusal to grant GSP preferences at the time of liquidation. That theory does not work because the protest was filed well after the 180-day limit for protesting a liquidation. That protest would be invalid and would not give the Court a basis for review.

The alternative theory is that the protest addressed the denial of the request for a refund. On this front, the plaintiff was also late. The statute specifically set December 28, 2015 as the last date for claims covering entries during the period GSP had lapsed. The claim was made on February 2, 2016, which was over a month too late. Given the statute, Customs had no authority to grant the requested refunds. Apparently, if CBP has no discretion, there is no decision to be made and, therefore, no decision to protest. Hence, the protest would be invalid and would not give the Court a basis for review.

This all appears perfectly reasonable. It seems to follow from other cases where the Court held that CBP’s ministerial role in something (e.g., the collection of Harbor Maintenance Tax) did not amount to a protestable decision. Personally, I think there is a close call in many of these cases between a lack of jurisdiction and an obvious result on the merits. Could the Court have held that it had jurisdiction and then just as quickly held that Customs properly denied the protest as untimely? Same result but the importer gets its day in Court.
GSP Refund Claims Denied GSP Refund Claims Denied Reviewed by Unknown on October 15, 2018 Rating: 5

Lamenting Litigation

October 15, 2018
Sometimes, a seemingly simple proposition is not easy to prove in federal court. Such is the case with the tariff classification of Ziploc bags.

First, a note to intellectual property lawyers. Ziploc is a registered trademark of SC Johnson & Sons. I am not using it as a generic description. Rather, it is the actual product at issue in the Court of International decision SC Johnson & Sons v. United States. I am not going to say "brand" or insert a registered trademark symbol ® throughout my text. Let's just all agree that when I say "Ziploc" I mean plastic bags that are products of SC Johnson & Sons.

On its face, one would expect that the classification of these common items under the Harmonized Tariff Schedule of the United States would be a relatively straight-forward proposition. In fact, I am surprised there is a controversy at all.

There are two potential HTSUS heading. Heading 3923 covers: "Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other closures, of plastics." Ziploc bags are arguably articles for packing goods such as sandwiches, potato chips, and other items tucked into a sack lunch. The also have many other hand uses. Personally, I put my phone, drivers license, and a $20 bill in a Ziploc or similar bag and stick it in my jersey pocket every time I go for a bike ride. Ziploc and similar bags are also handy for non-TSA Pre-Check packing of 3-ounce liquids. In all cases, I am packing some item or items and conveying them from one place to another. Even if I just us a Ziploc bag to collect loose change (as I do), I am arguably packing those things away for later use.

Heading 3924 covers: "Tableware, kitchenware, other household articles and hygienic or toilet articles, of plastics." Ziploc bags reside in the same drawer of my kitchen where you would find aluminum foil and plastic wrap. These bags find many uses in the kitchen including storage of otherwise loose items in the refrigerator, freezer, and pantry. 

Based on my experience and understanding of the English language, both of these headings describe the article. The question is which is the legally correct classification.

Usually, when there are two headings that both prima facie describe an article, the resolution is fairly easy. In that circumstance, General Rule of Interpretation 3(a) tells us that the most specific description is the one that prevails. The more specific description is generally understood to be the one that has conditions that are harder to satisfy or that covers the fewer number of items. 

This case, however, has an added complexity. While Heading 3924 is a list of items described by name (e.g., tableware and kitchenware), Heading 3923 is a description of items by use (e.g., articles for the conveyance or packing of goods). Thus, to decide whether there really are two headings applicable, the Court of International Trade had to determine whether Ziploc bags are used is a manner consistent with the articles of Heading 3923. If the bags are not of the class or kind of articles that are most commonly used in a manner consistent with the heading description, then they are not classifiable in both headings and the rule of relative specificity is inapplicable.

Classifying a product on the basis of use is, unfortunately, no simple task. The law is such that the Court of International Trade is to review seven factors that indicate use:

[1] use in the same manner as merchandise which defines the class; [2] the general physical characteristics of the merchandise; [3] the economic practicality of so using the import; [4] the expectation of the ultimate purchasers; [5] the channels of trade in which the merchandise moves; [6] the environment of the sale, such as accompanying accessories and the manner in which the merchandise is advertised and displayed; and [7] the recognition in the trade of this use.
Doing that, requires evidence, not just legal arguments about the scope and meaning of the headings. In this case, the Court concluded that it did not have enough evidence to perform a use analysis and, therefore, ordered that the case be tried.

So, we have no conclusion on the classification of Ziploc bags.

Is this the right or a good result? Honestly, I am concerned that setting this case down for a trial is going to make what is likely already an expensive case even more expensive and time consuming. Is there another way to get to the right result, whatever that may be?

There is a legal "rule of thumb" that a classification based on use is more specific than an eo nomine classification naming the item. If that rule is followed, then the goods should be classified in 3923, the use provision. See, e.g., Totes, Inc. v. United States. The problem with that is that GRI 3(a) says there is only a question of relative specificity if the two headings are equally applicable. It seems that can only be the case after we know that the item is classifiable in the use provision. So that does not really help at this stage. This may explain why the Court did not reach a conclusion.

Rather than a trial, the Court could also have held open the motions for summary judgment and asked for additional briefing on the open questions of fact. The Court acknowledged that it has information concerning the physical characteristics of the bags, actual consumer use of the bags, and consumer expectation of the bags. What is missing? Is there, for instance, deposition testimony on channels of trade or acceptance in the trade of this use? If not, perhaps a short period of limited discovery on the specific open questions followed by new briefs would help resolve the matter. There is nothing wrong with a trial, but the actual recitation of testimony in front of a judge in open court may be more than is needed to get this one done and in the books.

This is something I think about a lot. Customs classification cases are too expensive and often too complicated to be economically justifiable. A lot of this has to do with discovery and trial preparation that is rarely dispositive of the case. More often than not, the case turns on the interpretation and scope of the headings rather than the nature of the imported item. In those cases, no amount of deposition testimony, marketing literature, or internal Customs memoranda will change how the judge reads the statute.

This is not one of those cases that turns on a question of law. The Court is saying that it lacks evidence for facts specifically necessary to perform the required analysis. I get that. Still, how hard should it be to classify a Ziploc bag? Essentially every American knows what they are and how they are used. Is it going to be necessary for SC Johnson to hire a pollster to design a rigorous poll to determine consumer expectations regarding Ziploc bag usage? It seems to me, and this is just me opining rather than a statement of law, that the rules and procedure are making this more complicated and expensive than is should be. Maybe not every classification brought to the Court needs to be a full-blown federal case.

Years ago, the practice at the Customs Court was to place every denied protest on the Court's docket. Judges would periodically show up at ports and, when requested, review the protest decisions in open court. It is my understanding that there was no discovery and little to prepare. I imagine the practice was much like traffic court is today. I think I am feeling nostalgic for a practice I never actually knew.


Lamenting Litigation Lamenting Litigation Reviewed by Unknown on October 15, 2018 Rating: 5

Case Dismissed Over $26

September 07, 2018
Often, Customs and Border Protection gets a win for legally correct reasons that are not, in the bigger picture, "just." That is the nature of what we do. There are rules and we live in a country where the rule of law is supposed to matter. We cannot avoid the application of those rules to reach the result we think is better on policy or personal grounds. Neither Congress nor the Administration (including the executive agencies like Customs and Border Protection) can impose their wills to reach a desired conclusion that is inconsistent with the law or the constitution. If they do, it is the role of the judiciary to declare the action illegal and ensure it is remedied. At least that is how it is supposed to work. That is why a lifetime appointment to the federal bench in among the most consequential of powers granted the President and the Senate. At the same time, federal judges (particularly in lower courts like the Court of International Trade) have to follow the law as written and as interpreted by higher courts. In the case of the CIT, that means the Court of Appeals for Federal Circuit and the U.S. Supreme Court.

Why am I thinking about this? Mostly because I watch and read the news. Also, because I have given a lot of thought to how importers can have their rights protected when Customs takes an action contrary to their interests. There are many traps in that process, any one of which can end up with the importer not getting his or her day in court. Also, it is often unreasonably expensive meaning that many individuals and small importers with serious claims are priced out of court.

Which brings me to the tragic tale of Dis Vintage LLC v. United States.

Here is the law you need to know: Under 28 U.S.C. 2637(a), "A civil action contesting the denial of a protest under section 515 of the Tariff Act of 1930 may be commenced in the Court of International Trade only if all liquidated duties, charges, or exactions have been paid at the time the action is commenced . . . ."

Here are the facts you need to know: Dis Vintage had a classification beef with Customs over whether its imported apparel should be classified as "worn" clothing and eligible for duty-free treatment. It filed a timely protest and the protest was denied. Customs issued a series of bills to Dis Vintage seeking payment of the duties. The bills came as follows:
  • January 25, 2016 - "Full Amount Due Upon Receipt" was $9,981.80, "Amount Due After 02-05-16 (including interest)" was $10,006.38.
  • February 29, 2016 - "Full Amount Due Upon Receipt" was $10,006.38, "Amount Due After 03-06-16 (including interest)" was $10,031.01.
  • April 4, 2016 - "Full Amount Due Upon Receipt" was $10,031.01, "Amount Due After 04-05-16 (including interest" was $10,057.08.
Upon receipt of the April 4, 2016 bill (on April 11, 2016), Dis Vintage paid CBP $10,031.01. On May 12, 2016, after paying that bill, Dis Vintage filed its summons to commence a case in the Court of International Trade. Then, on May 16, it received a bill for the "remaining amount due" of $26.16.
Has Dis Vantage succeeded in commencing its case? 

[Stop reading and drop a comment answering that question. Then finish reading this post.]

The Court of International Trade found the law to be clear and unambiguous. At the time it filed its summons, Dis Vintage had not paid "all liquidated duties, charges, or exactions."
First, the Court noted that it has no discretion around questions of jurisdiction. Noting a prior Federal Circuit decision, the Court stated that it cannot, "even in the interest of justice, extend [its] jurisdiction where none exists." The Court noted that each bill contained two amount and that each provided the date on which additional interest became due. In the case of the January and February bills, the importer had about a week to make payment before the interest was added to the debt. That was not the case for the April 4 bill, which was presumably the March bill but sent late and gave only one day's notice before the interest was added to the debt. Note that the April bill was received after the additional interest became due.

According to the Court, Customs properly added interest to the debt every 30 days. Thus, the interest became due on April 5 even though the bill was issued late and did not provide adequate time to pay. Dis Vintage paid the bill after April 5 and did not pay the interest owed. As a result, it did not satisfy the statutory requirement to invoke the jurisdiction of the Court of International Trade.
In many cases, the law has an escape value for bad facts like this. That valve is known as "equity" and gives courts some flexibility to do what is right. The Court of International Trade has all the powers in law and equity as are enjoyed by any other federal district court, so can it make this right?
In short, no. There is no equitable exception to jurisdiction. Courts can only act within the scope of authority granted to them by the constitution and Congress. The CIT, therefore, was stuck. Dis Vintage pressed on arguing that the bills were ambiguous and the Customs failed to send the bills on time. Moreover, able counsel for Dis Vintage, apparently aware of the legal requirement, put into the record an email exchange regarding the payment and CBP's confirmation that it had been accepted and applied to the debt. Nevertheless, the Court found it was not authorized to act in part because CBP never said that the debt was paid in full.

I have no idea how much money was at stake in the disputed protest. I do know that this issue of having to pay the debt prior to commencing an action is a trap and a problem for litigants. There have been multiple cases in which the importer did not have the financial ability to pay the bill to challenge the denied protest. This results in meritorious claims going unreviewed. 

I am aware that there are strategies to get around this. For example, CBP may be willing to act on a single test protest, leaving the others suspended while the court action plays out. That can work. But, it depends on the willingness of CBP to proceed on that basis. It does not, however, address the problem of the importer who cannot afford to pay the duties even on a single entry. Think, for example, of the importer who unknowingly entered merchandise subject to an antidumping duty order of 200%. That liquidation may be suspended for years resulting in a totally unexpected and potentially ruinous bill several years later. Why should that person have to pay the duties to challenge the assessment?

Perhaps the "why" no longer matters. This is the law. To change this, Congress will need to act. It could amend the statute to permit the importer to substitute a bond or other security to ensure that CBP will be paid if it prevails. That would permit the Court to get to the merits and provide additional judicial review of CBP's actions. That would be a net good for the trade and the public in general because there should always be adequate checks on the exercise of executive power.
Case Dismissed Over $26 Case Dismissed Over $26 Reviewed by Unknown on September 07, 2018 Rating: 5

CBP Sued Over Currency Seizure Practice

May 13, 2018
[Note: Updated to properly identify the organization supporting the litigation.]

I often tell students and other lawyers that the great thing about my practice is the lack of human drama. In most cases, getting to the right result in a dispute with Customs and Border Protection is about knowing the law and making sure everyone applies it properly to the facts. Usually, no one cries and rarely is anyone subject to imprisonment.

But, that is not always the case. One thing we do in my office is help people with currency seizures. Just to be 100% clear on this: It is illegal to bring over $10,000 in or out of the country without declaring it to Customs. This is very useful information for law enforcement on a number of fronts. The money might be from illegal activity, it might be going to support terrorist organizations, it might be part of a money laundering scheme.

When entering the country, there is an obvious time and place to make this declaration. If you are using a paper declaration form, it is right there as 13: "I am (We are) carrying currency or monetary instruments over $10,000 U.S. or foreign equivalent. Yes. No." On the other hand, when leaving the country, no one asks that question. Many people do not know there is an obligation to report when leaving the country. Those who do may find it hard to find the actual CBP office where the declaration needs to be made and get there in close proximity to the time for a departing flight.

What you need is a FinCEN 105 form. According to the instructions, travelers "shall file FinCEN Form 105 at the time of entry into the United States or at the time of departure from the United States with the Customs officer in charge at any Customs port of entry or departure." If this is relevant to you, call the general number at the port you will be transiting and ask for the correct location to make the declaration. Then, ask yourself why you feel the need to carry a bundle of cash.

I have seen this process cause grief several times. In most cases, if the traveler can prove a legal source of the funds, he or she can secure the release of much of the seized funds. But, not always. If the evidence of lawful sources is unclear or if there are aggravating factors such as efforts to conceal the currency or lying to Customs, the funds or a portion of them may be forfeited.

For the average person, the requirements and then the civil asset forfeiture process can be difficult to navigate. And, honestly, the Customs people who are the front line on this issue are not always as clear and respectful as one would hope.

Another problem is that CBP will not release the seized currency unless the traveler signs an agreement stating that it will not take any legal action against CBP. This is called a hold harmless agreement. According to CBP practice, if the traveler fails to sign the hold harmless agreement, CBP will start administrative forfeiture procedures. Translated to English, that means CBP will use the money as leverage to get itself out of any potential legal jeopardy.

The problem is that the seizure may have actually violated the rights of the traveler. Signing the hold harmless agreements means the traveler gives up the ability to challenge the seizure or seek damages for an unlawful seizure. That means, for example, waiving arguments that the seizure was an unconstitutional taking, violated the fourth amendment's protection against unlawful seizure (but see this discussion), or was otherwise unlawful. Moreover, it means that if CBP delays or otherwise fails to return the money in a timely manner, the traveler gives up his or her first amendment right to petition the government for redress of that claim.

This is the issue in a recently filed class action law suit challenging the requirement for a hold harmless agreement. Thanks to Clif Burns'  Export Law Blog for the tip.

The case is brought by the Institute for Justice. According to its website, "IJ litigates to limit the size and scope of government power and to ensure that all Americans have the right to control their own destinies as free and responsible members of society." Here is the IJ description of the case.

The underlying seizure involved a passenger heading to Nigeria who failed to disclose that she was carrying a little over $41,000. The passenger was a nurse who had saved much of the money to open a clinic in Nigeria. The remainder was from family sources and was to be delivered to her family in Nigeria. Not that is matters, but she was born in Nigeria and became a U.S. citizen in 1994.

Customs seized the currency and gave her a Civil Asset Forfeiture election form on which she could tell CBP whether she abandoned the currency, would pursue an administrative process, or wanted the case referred to the Office of the U.S. Attorney for judicial proceedings. She requested the latter.

The U.S. Attorney did not act on the case within the time permitted. The legal consequence of this is that the money is to be returned to the traveler promptly. See 18 USC 983(a)(3)(B). Rather than promptly returning the funds, CBP sent the hold harmless agreement and informed her that the money would be returned in full when she signed and submitted the agreement. Rather than do that, she brought this action:

to put CBP’s policy or practice to an end, to void any Hold Harmless Agreements signed by class members as a result of this policy or practice, to recover [the named plaintiff's] seized cash and any other seized property that has not been returned to class members because they did not sign Hold Harmless Agreements, and to stop CBP from targeting her for additional, intrusive screening without giving her an adequate opportunity to challenge her classification.
One of the interesting things that is likely to come out of this case is some data on how often these seizures happen. More important, how often does CBP make a seizure that the U.S. Attorney does not pursue?

This latter question is of practical importance to lawyers who deal with seizures. If it turns out that Assistant U.S. Attorneys more often than not do not pursue civil forfeitures, then maybe it does not pay to go through the CBP administrative forfeiture process. That process is slow and it is not always clear who is making or influencing the decision. There is also the perception (and it may just be the perception) that once the seizure train starts, it is very hard to stop before it arrives at a forfeiture. There are lots of reason for this including some degree of CBP deference to port-level enforcement.

The problems are often more acute when merchandise other than currency is seized. This is because it is not always easy to figure out what storage fees might be incurred. At some point, storage can be more expensive than the value of the merchandise and the expense of hiring counsel who is familiar with the process. Importers will often cut their losses by abandoning the merchandise rather than fight what might be an unjustified seizure.

This is a case to watch. The fact that it is being brought as a class action and supported by a non-governmental partisan entity means it is less likely to go away with a quiet settlement. This case is clearly addressed to a bigger picture idea. CBP could, of course, make it go away by issuing the refund and by changing its practice.

I also think there is an issue here for Congress. As long as the law requires the declaration, there should be a clear means of doing so. Congress should require that ports (including the domestic terminals of airports from which international flights leave) prominently post the requirement to report. Furthermore, the airlines, cruise lines, and other carriers should be required to distribute the forms. In the alternative, CBP and FinCEN (the Financial Crime Enforcement Network) should make it possible to file the form online some reasonable time before departure. Seriously, we don't need people getting caught up in this for no reason other than a lack of knowledge. Moreover, we do not need to have knowledgeable travelers wandering around airports trying to find a CBP office to submit the form.

That may not fit with the Institute for Justice goal of limited government, but that's not my goal here.

CBP Sued Over Currency Seizure Practice CBP Sued Over Currency Seizure Practice Reviewed by Unknown on May 13, 2018 Rating: 5

Contain Yourself

January 07, 2018
The Container Store v. United States has an interesting history. It involves the tariff classification of elfa "top tracks" and "hanging standards." Top tracks are the horizontal mounting members that can be affixed to a wall. The hanging standards are vertically connected to the top tracks. The hanging standards have slots that can be used for mounting attachments such as shelves, baskets, and drawers allowing consumers to build customs storage solutions. I am pretty sure this is what we are talking about:


This may ring a bell with you, because we have been down this road before. We discussed the CIT decision in this case here. And, before that, we addressed the same question in a case called storeWALL. 

The reason this issue is back before the Court of Appeals for the Federal Circuit is that in customs law, few things are ever final and beyond subsequent question. Each time an importer has a classification dispute with Customs and files a protest, the denied protest can be the basis of a separate lawsuit. For reasons of history and Supreme Court precedent (that might be worth a second look), a CIT decision stating the classification of the merchandise does not preclude either party from challenging the decision again and re-litigating it. For the lawyers reading this, despite what you may have learned in Civil Procedure, normal rules of res judicata do not apply to customs litigation. 

In the first Container Store case, Judge Ridgway followed the Federal Circuit decision in storeWall and concluded that the merchandise is classifiable in Heading 9403 as parts of unit furniture. Apparently, the United States government was not happy with that result, and re-litigated the issue. This time, the case landed on the desk of Judge Barnett who reached a different conclusion. According to Judge Barnett, the metal components at issue here differ from the plastic storeWall products. He found that Chapter 94 Note 1(d) excludes the merchandise, which he found to be "parts of general use." Accordingly, they should be classified in Heading 8302. 

Heading 8302 covers:

Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal; and base metal parts thereof:
Heading 9403, on the other hand, covers "Other furniture and parts thereof . . . ."

Note 2 to Section XV states that parts of general use include "[a]rticles of heading  . . . 8302." Container Store does not dispute that parts of general use of Heading 8302 are excluded from Heading 9403. It argued, however, that the merchandise is not parts of general use. Spoiler: The Federal Circuit agreed with The Container Store.

Relevant here are the Explanatory Notes to the Harmonized System. With respect to Heading 8302, the Notes state:

This heading covers general purpose classes of base metal accessory fittings and mountings, such as are used largely on furniture, doors, windows, coachwork, etc. Goods within such general classes remain in this heading even if they are designed for particular uses (e.g., door handles or hinges for automobiles). The heading does not, however, extend to goods forming an essential part of the structure of the article, such as window frames or swivel devices for revolving chairs.
According to the Federal Circuit, the top tracks and hanging standards form the indispensable structural framework of the modular storage unit. Based on the Explanatory Note, these items are excluded from classification in 8302. That means, the goods are not excluded from Heading 9403.

This should not be seen as upending the law on parts of general use. It remains true that parts of general use are to be classified as such even if they are specialized to a specific task. The Federal Circuit addressed this in its discussion of its prior Honda decision. That case involved the classification of an oil bolt, which is a specialized fastener that also includes features allowing it to transfer oil. Honda argued that it was classifiable as a vehicle part, not a bolt. The Federal Circuit disagreed. The difference here is that there was no reason to exclude the oil bolts from the classification for fasteners. Here, the Explanatory Notes indicate that structural components are not included in Heading 8302.

Because the top tracks and hanging standard are not classifiable in 8302, they are not parts of general use. Because they are not parts of general use, they are not excluded from 9403. Having reached that conclusion, and consistent with storeWall, the Federal Circuit concluded that this merchandise is best classified in 9403.90.80 as parts of unit furniture.

Note that this does not follow directly from storeWALL as a matter of stare decisis. This is related to but different than the lack of res judicata mentioned above. Stare decisis is the legal principle that cases should be decided based on precedent. This is a fundamental characteristic of the common law system used in the U.S., Canada, the U.K., and other jurisdictions. But, stare decisis only applies to the legal determinations and not to the questions of fact nor to legal determinations not part of the prior holding. In a classification case, whether the item fits in a particular heading is a question of fact. So stare decisis does not apply to the final classification determination. And, storeWall did not address the question of parts of general use and Heading 8302. So, while the result is the same as storeWALL, that decision did not dictate the outcome.




Contain Yourself Contain Yourself Reviewed by Unknown on January 07, 2018 Rating: 5

Recently, On Discovery

December 31, 2017
This has nothing to do with Michael Burnham or tardigrades.
Discovery disputes are pretty uncommon in the Court of International Trade, and for good reason. Most CIT cases, these days, are “on the record” reviews of antidumping and countervailing duty decisions from the Department of Commerce or International Trade Commission. Those cases do not involve discovery about which to have a dispute. Most customs cases are tariff classification cases in which there is not often a real dispute about the nature of the imported product. That means the cases turn on questions of law, not fact, thereby limiting the genuine (if not perceived) need for discovery.
Penalty cases area a whole different world. In penalty cases, the Department of Justice is often trying to figure out what happened and, more important, what it can prove. That means penalty cases often involve a lot of discovery requests from the government directed at the defendant and its personnel. For its part, the defendant often wants to know what the government THINKS happened and what the government THINKS it can prove. As a result, the defendant often seeks discovery of, among other things, Customs and Border Protection’s or Homeland Security Investigation’s Report of Investigation, which is the extremely tedious document that details the government’s investigation into the alleged violation. While the defendant is at it, the defendant will usually request any other relevant documents it thinks might exist and illuminate what has been happening.
The CIT Rules permit the use of the same discovery tools as are available in any U.S. District Court. Among those are depositions (Rule 30), interrogatories (Rule 33), and requests to admit (Rule 36). A party that believes a request has exceeded the permitted scope of discovery may move for a Protective Order to halt or limit the allege discovery abuse (Rule 26(c)).
Two recent decisions from the Court of International Trade have waded into the scope of permitted discovery. Both decisions are in the case United States v. Greenlight Organics, Inc. (slip op. 17-167 and 17-168).
The first decision involves Greenlight’s motion to compel the United States to produced 145 documents over which the government has asserted privilege. As background, the United States produced 2,861 documents, withholding 145. For those 145, as required by Rule 26(b)(5)(A), it provided a privilege log identifying the document along with its sender, recipient, date, subject, and the privilege claimed.
In this case, the government asserted the “deliberative process” and “law enforcement” privileges. These privileges protect the deliberations of agency officials from disclosure and encourage frank discussions of legal and policy matters related to the law enforcement decision-making process. Once the government successfully asserts the privileges, the burden shifts to the requesting party to show a “compelling need” to overcome the privilege.
To make a successful claim of these executive privileges, the government must do more than merely assert it. Following a decision of the U.S. Court of Appeals for the DC Circuit, Landry v. F.D.I.C., the Court of International Trade held that the government must:
1.       Make a formal claim of privilege via the head of the agency or his or her delegate;
2.       Submit an affidavit showing “actual personal consideration by that official;” AND
3.       Provide a detailed explanation of what the document is and why it falls within the scope of the privilege.
In this case, the government failed to submit the required affidavit. Having failed to do so, the United States has failed to successfully assert the privilege. Consequently, the Court ordered the United States to do so before ruling on the merits of the privilege claim.
Given the lack of a fully asserted claim for privilege, the Court found it premature to rule on Greenlight’s request for in camera review of the documents. In camera review is where the judge requires the party to produce documents for her private review so that the judge can make a fully informed decision on the merits of the claim of privilege and the other party’s need for production. The Court also declined to act on Greenlight’s motion to compel production.
The second Greenlight decision involves two competing motions. In the first, the United States seeks to compel responses to several discovery requests. The second involves Greenlight’s motion for a protective order preventing much of this inquiry by the government.
Here, I am going to cut to the chase so that I can discuss the underlying issue, which is, to my mind more important for the average reader of this blog. The government’s requests go to the personal involvement of the two corporate principals in the classification and valuation of the imported merchandise. In other words, the requests appear directed at determining whether those individuals were responsible for the alleged fraud or negligence. The requests also go to the personal finances of those individuals.
This should send a shiver of concern up the spine of corporate officers and compliance personnel. Greenlight Organics is the defendant in this case, not the individual officers. However, as a reminder, the dustup surrounding the 2014 Federal Circuit decision in Trek Leathermeans that “any person” can be liable for a violation of Section 1592, the customs penalty law. Thus, the individuals, acting as agents for the actual importer Greenlight, might be personally liable for their actions related to the alleged violation.
Because of this legal reality, the government asserted that its questions about the two individuals were related to the case against Greenlight and also to the possibility of claims against the individuals. The first part makes sense. If an officer or employee of Greenlight made a material false statement or omission, then Greenlight is liable for the violation. If that person made the false statement knowing it to be false, then Greenlight would potentially be liable for fraud—the highest level of culpability under the statue. Consequently, the Court allowed the inquiry into the personal involvement in the suspect decisions.
But what about claims against the individuals and the requests for personal financial information? Greenlight objected to these questions because the two individuals are not defendants in the case. The complaint, which sets out the plaintiff’s claims, does not allege individual wrongdoing or individual liability. According to Greenlight, that makes this line of inquiry outside the scope of the complaint and, therefore, outside the scope of appropriate discovery.
The Court disagreed. Citing Supreme Court precedent, the Court of International Trade noted discovery rules are liberally interpreted to permit discovery on any matter that may bear on an issue that is or may bean issue in the case. Discovery, in other words, is not limited to the complaint. According to the government, that is the point. It explicitly stated that it wanted the discovery “to assist it with determining whether to amend its complaint to include charges of individual liability against Greenlight’s officers.” According to the Court, this falls within the liberal nature of discovery and is, therefore, appropriate.
Because of all this, Greenlight’s motion for a protective order preventing much of this effort was denied.
So what is the take away from this? First, it is a reminder that the government can and will pursue charges against individuals for corporate imports. That underscores the importance of compliance generally and, for compliance personnel, the importance of documenting efforts to correct non-compliance by, when necessary elevating the issue to upper management. Second, these decisions are an important reminder that in a de novo penalty case, the original complaint does not fix the scope of the claims that can be brought by the United States.
But, is that the right result? A couple things make me wonder. First, Rule 26 sets out the scope of discovery. As presently constructed, the Rule allows discovery:
regarding any nonprivileged matter that is relevant to any party’s claim or defense – including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.
I have always read the Rule’s focus on claims and defenses as limiting discovery to joined issues. That means claims and defenses as reflected in the complaint and the answer. That is, of course, inconsistent with the result here, so it is not legal advice. I thought discovery was only permitted on  matters related to the subject matter of the action but not related to a claim or defense “for good cause.” Again, that appears to be an incorrect reading.
It is worth noting that the U.S. Federal Rules of Civil Procedure used in the districts courts modified the corresponding FRCP 26 to remove the good cause test and also removed the condition that “information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” See FRCP 26. The CIT rules will probably make a similar change at some point. What, if any, impact that has on the future application of CIT Rule 26 remains to be seen. It appears to indicate that the focus remains on claims and defenses while laying on top of that a condition that the request be proportional to the stakes of the case. 
A second issue has to do with the nature of the action. A penalty case in the Court of International Trade is not an empty hook on which the United States can hang any theory of liability against the importer and the individuals involved. Rather, it is a collection case in which the United States seeks to recover the penalty Customs already assessed in the administrative process. Absent a perfected administrative claim against an individual or entity, there is no claim to assert in Court. The only de novo aspects are that the Court decides whether the United States has proven in court the facts necessary to substantiate the already asserted claim. Based on the facts proven in court, the CIT can order the defendant to pay the full claim, a lesser amount, or nothing at all. This is the rule of exhaustion of administrative remedies in a penalty case as explained in United States v.Nitek Electronics, Inc., and UnitedStates v. Optrex America, Inc.
Discovery is a preliminary stage of litigation. A lot can and still might happen in this case as it proceeds. If new claims are brought, the Court may be asked to address the question of whether the claims were properly perfected at the agency level. There may also be questions of whether the statute of limitation has expired on any new claims. This could come in the form of a motion to dismiss or motion for summary judgment.
For now, we know that the discovery rules are to be liberally construed and that Greenlight will likely have to turn over the requested information. We also have a stark reminder of the importance of legal compliance both for corporate entities and for individuals. The rule of Trek Leather is that Customs need not pierce the corporate veil to assert liability against individuals who were personally involved in making material false statements or omissions. Continue to document your compliance efforts and push back wherever you perceive potential non-compliance.
There is certainly more to follow in this case.

Recently, On Discovery Recently, On Discovery Reviewed by Unknown on December 31, 2017 Rating: 5

Irwin Tools: Pliers are Still Pliers

October 15, 2017

Remember the Irwin Tools Case? That case considered whether certain locking pliers were properly classified as wrenches or as either pliers or clamps. The Court of International Trade held that the plaintiff had overcome the presumption that Customs correctly classified the pliers as wrenches. But, because Irwin had not moved for summary judgment, the Court could not give a final classification. Subsequently, Irwin moved for summary judgment and the government moved for reconsideration of the original decision. If you have not read my original post on this case, please do so.

The CIT has now handed Irwin a complete victory. The gist of the prior ruling is that a wrench has a head that fits snugly over or around the head of a fastener and a single handle that can be turned to apply torque. Pliers, on the other hand, have two handles and two jaws that pivot and must be squeezed to grasp an object. A clamp has a frame of some kind and two opposing surfaces that can be adjusted by a screw, lever, or similar device to hold an object firmly in place.

A motion to reconsider a prior judgment is directed to the discretion of the Court. The Court will grant a motion to reconsider when it finds that justice requires it to do so. Factors that may indicate justice requires reconsideration include a significant change in the controlling law or reason to believe that the court patently misunderstood the issues presented. A simple disagreement with the outcome will not do it. That was the case here and the judge denied the motion.

So where do we classify locking pliers? No surprisingly, as pliers. All of the locking pliers have two handles and two jaws that pivot relative to one another. This allows the user to squeeze the handles to close the jaws around an object to manipulate it.

The Court also found that the evidence before it did not establish that the locking pliers were classifiable as clamps. Rather than be tightened with a screw, lever or thumb nut, the locking pliers are closed by squeezing the handles. Further, the configuration of the two handles and a pivot is distinct from clamps.

Reading somewhat between the lines and possibly due to my own involvement with this issue, it strikes me that the government’s main argument was that this issue had already been decided. The CIT addressed this issue in 1983 in a case called Associated Consumers v. UnitedStates, 5 CIT 148, 565 F. Supp. 1044. Associated Consumers was affirmed by the Federal Circuit in a non-precedential decision without an opinion. Of course, the 1983 case was under the old Tariff Schedule of the United States. Furthermore, the decision of one CIT judge is not binding on another judge subsequently looking at the issue. The Court, after reviewing the physical nature of the various tools at issue and the standard definitions of pliers determined that these locking pliers are properly classified as pliers.

There is a bit of side issue in this case about use. Does the word “wrench” suggest a particular use, such as turning a nut or bolt? Does the word “clamp” imply a usage? Maybe. But, that was all addressed in the prior Irwin decision and the Court saw no reason to revisit it now.
Anyone curious about all the bankruptcy issues floating around? I'm on it. I'll try to get to that this week.
Irwin Tools: Pliers are Still Pliers Irwin Tools: Pliers are Still Pliers Reviewed by Unknown on October 15, 2017 Rating: 5

Chew on This

August 14, 2017
The important legal and possibly philosophical question to be answered in Mondelez Global LLC v. United States is whether the unflavored, and largely chemical, base for chewing gum is classified in HTSUS Heading 2106 as a food preparation or in Heading 3824 as a chemical preparation.

While that is an interesting question, the most interesting thing about his case may be the procedure used to get it this far. It appears that the United States made a motion for partial summary judgment to ask the Court to decide a question of law as early as possible. This makes sense when there is a possibly dispositive question of law that can be resolved without discovery or the introduction of factual evidence. The answer to that question of law might lead the parties to resolve the case by settlement or, at a minimum, the answer provides guidance on what are the important questions of fact.

Addressing the legal questions early, therefore, can be an efficient way to manage customs litigation. At least that is the theory I put forth here. Things may have gotten a little bollixed up because Mondelez opposed the motion for partial summary judgment on the question of law and then jumped in with both feet asking the court to grant full summary judgment on the whole case before the parties had engaged in discovery. That's its right, so I can't really complain, but this does not seem to have been a good test of my theory of tariff litigation.

On the merits, the first question is whether gum base is a "food preparation" of Heading 2106., as the government contends. If the Court finds that gum is a food and that the base is specially prepared for the manufacture of chewing gum, then even with just partial summary judgment on those questions, the government might well win the case because it would follow that the gum base is a food preparation.

But, Mondelez has a different thought. It contends that Heading 2106 only covers items that are themselves consumed as food and that gum base is not consumed as food. Mondelez also points out that gum base is not intended for human consumption and is not valued for its nutritional qualities.

On this question, the Court noted that the phrase in 2106 is "food preparation." That has a different meaning than the phrase "preparations for food." As written, preparations classifiable in 2106 must be food. According to the Court, "food" is a substance that is intended to be ingested or imparts flavor or nutritional value to something that is ingested. So tea leaves are presumably food preparations because they impart flavor to tea even though the leaves themselves not consumed. Something can be food without providing nutritional value, so long as it is ingested.

But, the government also argued that if it does deliver nutrition, the substance is food. At this early stage, the government has not explored whether the gum base is a means of delivering nutritional compounds, even if the base is not ingested. It turns out that gum bas includes a few components that arguably have nutritional value. Those are vegetable oil, calcium carbonate, lecithin, and triacetin.

In an effort to avoid a potentially costly scientific and expert analysis of this question, the government moved for partial summary judgment on the scope of 2106 without first investigating this question. Because of that, it asked the Court to refrain from deciding Mondelez's motion for summary judgment. The Court, not wanting to penalize the government for trying to be efficient, agreed and did not address that question.

Still on the table is whether chewing gum base is covered by Heading 3824 as a chemical preparation. Note 1(b) to Chapter 38excludes "mixtures of chemicals with foodstuffs or other substances with nutritive value, of a kind used in the preparation of human foodstuffs . . . ." Such goods, according to the note generally go in Heading 2106. The Explanatory Notes clarify that goods are not excluded from Chapter 38 by the mere presence of substances having incidental nutritive value. In other words, products of 2106 are "of a kind" used in the preparation of human food and which are valued for their nutritional content.

That means there is a necessary question of fact to be resolved: is gum base valued for its nutritional properties? That, according to the Court, is essentially the same question that must be answered to resolve the classification in Heading 2106.

This sets up a problem for the Court. Mondelez moved for summary judgment and presented evidence that gum base is not valued for its nutritional properties. The U.S. was hoping to avoid this issue and moved to resolve the legal question of whether gum base is a food preparation (making chewing gum "food"). If the Court ruled it is not food, then 2106 would have been excluded. The Court could not answer that question on the record presented. If it acted on Mondelez's motion for summary judgment, it would be doing so on a less than complete record, putting the government at a disadvantage for having tried to get the case resolved efficiently.

The Court wisely refused to do so. Instead, it ordered the government to advise whether it wants time for discovery. If no discovery is needed, Mondelez will prevail on the basis of the uncontroverted evidence.


Chew on This Chew on This Reviewed by Unknown on August 14, 2017 Rating: 5

Good News (About Ford and the Blog)

August 10, 2017
Turns out that I am still alive and still consider this to be an active blog. I have been working very hard on a number of fronts and simply have not had the time to keep you all up to date. I'll be back soon.

I know I will be back soon, because this showed up on the docket at the Court of International Trade in Ford Motor Co. v. United States:

Order entered on 8/9/2017 Judgment: ORDERED that Plaintiff's motion for summary judgment is GRANTED; it is further ORDERED that Defendant's cross- motion for summary judgment is DENIED; it is further ORDERED that judgment is entered for Plaintiff; it is further ORDERED that the subject merchandise is correctly classifiable pursuant to subheading 8703.23.00 of the Harmonized Tariff Schedule of the United States ("HTSUS"); it is further ORDERED that Customs and Border Protection, United States Department of Homeland Security ("Customs"), reliquidate the entry which is the basis of this case under the aforesaid HTSUS subheading; and it is further ORDERED that Customs refund to Plaintiff any overpayment of duties together with any interest allowed by law. (related document(s) 144 ).(Demb, Rebecca) (Entered: 08/09/2017)

This is the much discussed, by me at least, case involving the tariff classification of the Ford Transit Connect.  This docket entry indicates that Ford has won at the Court of International Trade. The decision has not yet been published as the Court has requested that it be reviewed to identify any business proprietary information. A decisions should be published in the next two weeks.

Obviously, a more detailed analysis will follow.

Congratulations to Ford and its counsel.
Good News (About Ford and the Blog) Good News (About Ford and the Blog) Reviewed by Unknown on August 10, 2017 Rating: 5

Ruling of the Week 2017.9: Chronically Late

April 29, 2017
Had I been thinking and available to do it, I would have posted this on April 20. Sorry I am late.

Grab some snacks, because we are about to discuss HQ H282163 (Apr. 13, 2017), which addresses whether a storage case with multiple adjustable compartments and a combination lock closure is prohibited merchandise.

Why would that be the case? It might help to know that the cases go by the name "Stashlogix" and come in three modes: Go-Stash, Eco-Stash and Pro-Stash. In addition to the combination lock, other Stashlogix features include a "stash journal" to "help keep track of all those crazy names," a UV-proof jar that can be re-labeled, odor absorbing packs, and a labeling marker. The products are designed "based on the principles of functionality, security, and discretion." The company advertises that the cases are used to store valuable private items such as fire-arms and addictive pharmaceuticals.

Here is a picture of the "Pro-Stash" case:


As you might have figured out, the question is whether the Stashlogix cases are drug paraphernalia under 21 USC 863. If so, they are prohibited merchandise.

The law defined drug paraphernalia as follows:
any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under this subchapter. It includes items primarily intended or designed for use in ingesting, inhaling, or otherwise introducing marijuana . . . .

The statute contains many examples of drug paraphernalia including variations on pipes, miniature spoons, wired cigarette papers, and cocaine freebase kits. None of the exemplars in the statute are carrying or storage cases. So why is this a problem?

In the ruling, Customs and Border Protection noted that similar UV-proof jars are sold with labels clearly indicating their connection to marijuana and related products. One example is labeled, in part, "THC," which is a reference to "tetrahydrocannabinol," the principal active ingredient in weed. Another UV-proof jar is decorated with a marijuana leaf. 

Customs also noted that one reseller of the bags, a site called 420Science.com, advertises them with other "stash bags" from a company called "Dime Bag," which is clever. Also, a site called The Stoner Mom wrote a favorable review of the Stashlogix cases. According to the review, the cases are "perfect for today's stoner parent."

[As I sit here, it occurs to me that I have been surfing headshops and stoner sites for an hour. For the next six months the internet will probably be serving me adds for all sorts of stonerware.]

The question is whether any of that matters. The Stashlogix bags are discrete. They do not have the stereotypical stoner markings such as pot leaf designs, variations on the flag of Jamaica, and pictures of Shaggy from Scooby-Doo.


Plus, jars are jars. They can be used for anything. If I were a chef, this might be a perfectly good way to protect, organize, transport and store [see what I did there?] spices and other valuable but non-perishable ingredients. Could it also be a travel bag? The jars might be useful for cosmetics and other preparations.

On the other hand, we should not blind ourselves to the reality of these bags. After all, they are called "Stashlogix" for a reason. According to Urban Dictionary, my favorite lexicographical resource, "stash" can refer to a "secret collection such as of drugs, pornography, etc." Also, according to Stoner Mom, the Stash Journals included with the bags are pre-printed with guides for rating the form and strain including categories for edible, oil, and powder, which (I am told) are forms in which weed and weed products can be consumed.

Getting back to the law, the statute also identifies several relevant factors. Those include:
  1. instructions, oral or written, provided with the item concerning its use;
  2. descriptive materials accompanying the item which explain or depict its use;
  3. national and local advertising concerning its use;
  4. the manner in which the item is displayed for sale;
  5. whether the owner, or anyone in control of the item, is a legitimate supplier of like or related items to the community, such as a licensed distributor or dealer of tobacco products;
  6. direct or circumstantial evidence of the ratio of sales of the item(s) to the total sales of the business enterprise;
  7. the existence and scope of legitimate uses of the item in the community; and
  8. expert testimony concerning its use.

Given all of this, the legal question is whether the Stashlogix cases are "primarily intended for use" and "designed for use" in, among other things, concealing a controlled substance. These are to be considered objectively and with respect to the likely use of the item, not a specific or individual use. My example of the well-organized chef, does not help if the most likely use is by the Stoner Mom and her stoner ilk.

So, what is the evidence of intended use and design?

First, the odor absorbing packets are described as providing "discretion." According to Customs and Border Protection, the intent and likely use of these packets is to conceal the odor of weed.

What about the UV-proof jars? Initially, I thought the intent was to preserve the contents by blocking UV light; like putting beer in an amber or green bottle. Apparently, my weed knowledge is limited. According to Customs, the specific type of glass involved here has the capacity to absorb UV light and also X-rays. That means the jars are designed and intended to help conceal, rather than preserve, the contents.

Marketing for the bags did not help. As mentioned, they are sold along side other bags that are more explicitly for the storage of pot by retailers expressly catering to stoners. It is hard to say whether that marketing should be imputed to Stashlogix. The fact that Stoner Mom and other bloggers find the bag useful is not really direct evidence of Stashlogix's design and intent.

On the other hand, Stashlogix does not seem to have gone out of its way to break that association. Stashlogix does not explicitly say it makes and imports stash bags for stoners. It says it provides locking cases for people looking to discretely store private items. Those private items could be prescription medications, weapons, or anything else. A post on its website includes this picture:

Note that the bag seems to contain a wallet, some sunscreen, and other items that do not look to be weed-related. A locking travel bag seems to be very useful at the waterpark or when forced into close quarters with people you don't know particularly well. It could also be very useful at home if someone required powerful medications that should not be left accessible to kids.

Customs did not buy any of that. It seems that the Stoner Mom and 420 Science made this case much harder than it might have been had Stashlogix been able to control its branding. The "Stash" part of its name does not help either. If I were giving the company legal advice, I would drop the stash journals too.

Stashlogix is now in a tough spot. State laws have greatly expanded the ability of Americans to legally access weed. But, it remains subject to federal law. The law prohibits the importation of drug paraphernalia. You might think that Stashlogix could start sourcing its product in the U.S. to avoid the customs issues. Unfortunately, the law also prohibits the use of interstate commerce to transport drug paraphernalia. I hope these guys have a factory in Colorado because if this ruling sticks, that might be the best place to make and also sell the bags.

One interesting aside is that this ruling does not involve customs duties. It goes to whether Stashlogix can do business as an importer. That might be irreparable harm. This might be one of the vary rare cases in which 28 USC 1581(h) would give the U.S. Court of International Trade jurisdiction to review a CBP ruling without the importer having to make an entry and protest the liquidation. 



Ruling of the Week 2017.9: Chronically Late Ruling of the Week 2017.9: Chronically Late Reviewed by Unknown on April 29, 2017 Rating: 5
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