Requirement to Pay Duties Before Filing Classification Cases Unconstitutional, Lawyer Tells Federal Circuit
The requirement that importers pay duties before bringing tariff classification cases to court is an unconstitutional hurdle that allows CBP to disregard rulings “with impunity” if the duties imposed are too much for the affected importer to bear, said Gregory Teufel, attorney for International Custom Products (ICP), in oral argument before the U.S. Court of Appeals for the Federal Circuit on May 8. The pay to play scheme is an unconstitutional bar to importers’ right to due process because it allows CBP to deprive them of a “property interest” in the form of a binding ruling without any notice or the opportunity to be heard, said Teufel.
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ICP is appealing a Court of International Trade decision from September 2013 that found the law requiring payment of duties before filing a CIT case, 28 USC 2637(a), did not violate its constitutional rights (see 13090501). The court ruled ICP would have had to pay $28 million to have its day in court. At issue in the group of related cases are about 100 entries of “white sauce” for which CBP issued a ruling in 1999 finding it a sauce dutiable at 6.6%, but then sent ICP a notice of action in 2005 finding the white sauce to be “butter and dairy spreads” with an out-of-quota rate of $1,996 per kilogram. ICP’s duty liability instantly rose by 2,400 percent.
The company was only able to pay to challenge one of the entries and won, with CIT ruling that the notice of action sent by CBP that resulted in the duty increase improperly revoked an earlier ruling without the notice and comment required by law (see 12121239). The Federal Circuit affirmed in April 2014 (see 14041501). Following the CAFC decision, CBP reliquidated 84 other entries of white sauce at the lower 6.6% rate from the 1999 ruling. That leaves 13 entries of white sauce that the government still argues it should remain liquidated at the higher rate.
During oral argument on May 8, Circuit Judge William Bryson questioned whether the ruling was a “property interest” that can be the subject of a due process challenge if deprived by the government. Teufel responded that a ruling similar to business licenses that courts have found to be property interests, because rulings allow importers to plan out their activities, know how much to charge and hire employees.
Prodded by Circuit Judge Alan Lourie, Justice Department attorney Reginald Blades acknowledged that the government would have lost the case on the remaining 13 entries if ICP had been able to pay the duties and get the case in court. However, ICP did have a remedy available to it that it chose not to take. The 84 entries reliquidated by CBP were different, because CBP knew those entries were tied up in the still-pending court case stemming from the single entry that ICP paid, said Blades. ICP never told CBP that the remaining 13 were subject to a court challenge, he said. ICP could have filed a request for reliquidation under 19 USC 1501 or a request to set aside the protest denial under 19 USC 1515(d) within 90 days of the denial of the protest, which would have put CBP on notice, said Blades. Instead, ICP did nothing before the 90-day deadline, and by the time ICP asked CBP to reliquidate the 13 entries it was too late, he said.
However, ICP didn’t specifically ask for suspension of the reliquidated 84 entries either , said Teufel. CBP knew ICP was protesting and knew it was related to a court case, and should not have needed “special notification” that the 13 entries were related to the same white sauce and the same importer. Sections 1501 and 1515(d) would not guarantee access to relief either, because CBP could deny the requests, he said. As the requirement to pay duties before getting to court currently stands, the government can “flagrantly disregard” notice and comment procedures for revoking rulings, and unless the importer can pay it can’t do anything about it, said Teufel. “You can rely on the government’s good graces, but that doesn’t satisfy the Fifth Amendment.”