Can US Customs and Border Protection (CBP) slap an importer with liquidated damages for failing to redeliver merchandise when CBP does not demand redelivery within the period required by CBP’s own regulations? Well, of course not, you would think. The answer is so obvious that no one in their right mind would waste the time and energy to argue against the point.
Cue US vs. Pressman-Guman, the latest case from the US Court of International Trade. The importer imported textiles. CBP issued a Request for Information (CF 28) to request samples from the importer. CBP wanted to review whether the importer properly classified the imported merchandise. When CBP received the samples, it sent two more CF 28s to the importer, informing the importer that CBP was extending the conditional release period by ninety days while CBP performed lab work on the samples. In other words, CBP claimed that it had an additional ninety days to decide whether to order the importer to return or redeliver the merchandise to CBP. About four months after it received the samples, CBP concluded that the importer misclassified the merchandise and improperly claimed quota. CBP demanded that the importer redeliver the merchandise into its custody, an impossibility given that the merchandise was already with the importer’s clients. CBP decided to impose $120,000 in liquidated damages against the importer’s bond. The importer refused to pay, and the CBP filed a lawsuit in the Court of International Trade.
The Honorable Delissa A. Ridgway wrote the court’s opinion. She methodically reviewed the mountain of evidence in the importer’s favor before dismissing the lawsuit. One of the pieces of evidence is 19 CFR 113.62(d) which states that “any demand for redelivery ... be made no later than ... 30 days after the end of the conditional release period.” Judge Ridgway excoriates CBP for ignoring its own history in interpreting the regulation:
This is an action that never should have been brought ... the Government here contends that individual Customs personnel at ports all across the country are empowered to redefine the concept and duration of the conditional release period “by unilateral fiat” and without explanation, as each individual sees fit, on a case-by-case basis, with no regard for consistency or predictability, effectively over-riding on a “one-off” basis virtually two full decades of Customs Headquarters rulings setting forth Headquarters' official, considered interpretation of the agency's regulations governing the timing of the issuance of demands for redelivery. Merely to state the proposition is to refute it.
Judge Ridgway’s biggest criticism is directed not at the CBP staffer who extended the thirty-day redelivery period. Instead, Judge Ridgway directs her derision at CBP officials and government attorneys who decided to press their claim in court:
However, while ignorance might (in some measure) excuse the actions of an individual Customs staffer working out in the “field,” it does nothing to explain the agency's subsequent determinations, much less the decisions of counsel to press an untenable position in litigation.
Judge Ridgway’s opinion is undoubtedly reverberating within CBP, and it would behoove the agency to be more carefully to actually follow its own regulations, rulings, and public pronouncements. Not only was CBP’s lawsuit bereft of logic, it needlessly consumed a decade’s worth of time and money for all parties involved. Judge Ridgway concedes that CBP, like all other federal agencies, has a right to change its policies and regulations, but can do so only in accordance with the law, presumably by following the public notice and comment procedures that all federal agencies must follow. Judge Ridgway’s opinion should help importers keep CBP honest regarding the interpretation and enforcement of CBP’s regulations.
In A Few Good Men, Demi Moore played an attorney defending two Marines against criminal charges. When testimony was not going her way, she objected, and the judge overruled her objection. She then “strenuously” objected, was overruled, and then asked that the judge to reconsider his ruling, which he, of course, did not do. She was Sisyphus in fast motion, futilely pushing up the same hill and before the same arbiter, and her co-counsel castigated her for her persistence.
It is hard to convince anyone they are wrong, especially judges. We lawyers (judges are lawyers) are a haughty bunch by training and disposition. Surrendering a centimeter to the other side diminishes us and our clients. For a court, the loss of face can be devastating. Revising a previous ruling suggests the possibility of inattention to detail or flouting of the law. Rather than self-flagellate, judges and parties tend to rely on the speculative system of appeals to make the necessary adjustments and balance the scales of justice.
Today the Court of International Trade (CIT) rejected the US Government’s request for the court to reconsider its judgment in favor of UPS, the defendant. The Government has long tried to collect a $75,000 penalty against UPS for misclassifying imported items and for not exercising “reasonable supervision and control” over its customs business as required by 19 USC 1641(b)(4) and 19 CFR 111.1. Previously, the Court of International Trade and, upon the appeal, the Court of Appeals for the Federal Circuit both agreed that UPS failed to properly classify the items. UPS still won (as it now stands) because the Government (specifically the CBP FP&F officer) failed to testify in the original trial that he considered all ten factors under the definition of “reasonable supervision and control.” See 19 CFR 111.1. In today’s ruling, the CIT rejected the Government’s request to reopen the trial to introduce the “ten factors” testimony and to reconsider the judgment it previously entered in UPS’s favor. The CIT refused to concede that it had committed “multiple and manifest errors” as alleged by the Government.
Although UPS won this latest skirmish, one of the most important issues to customs brokers remains unsettled in this prolonged litigation, namely whether CBP can penalize brokers beyond $30,000 for multiple violations under 19 CFR 111.91.
One certainty is that from now, CBP will regurgitate the ten factors each time it penalizes a customs broker. FP&F officers now have a lot more hoops to jump through.
For the curious, here are the ten factors under 19 CFR 111.1:
the training required of employees of the broker;
the issuance of written instructions and guidelines to employees of the broker;
the volume and type of business of the broker
the reject rate for the various customs transactions;
the maintenance of current editions of CBP Regulations, the Harmonized Tariff Schedule of the United States, and CBP issuances;
the availability of an individually licensed broker for necessary consultation with employees of the broker;
the frequency of supervisory visits of an individually licensed broker to another office of the broker that does not have a resident individually licensed broker;
the frequency of audits and reviews by an individually licensed broker of the customs transactions handled by employees of the broker;
the extent to which the individually licensed broker who qualifies the district permit is involved in the operation of the brokerage;
any circumstance which indicates that an individually licensed broker has a real interest in the operations of a broker.
Principal and a founding member of GRVR Attorneys.