US CBP often asks importers to sign a statute of limitations waiver (usually two years) in penalty and liquidated damages cases, or when the importer is filing a prior disclosure. CBP is trying to preserve its rights to sue the importer before the statute of limitations runs out. Once the deadline comes and goes, the Government will not able to sue unless there is some sort of equitable tolling.
Should importers sign these waivers?
CBP tends to make vague but alluring promises (which never seem to be get reduced to writing) about how signing a waiver will help convince the agency about the importer’s intention to cooperate. It is the “we’ll play nice if you play nice” strategy. CBP has a couple of regulatory tools to coerce importers into signing statute of limitations waivers, including speeding up its decision on the penalty. If there is less than one year left and the importer has not signed a waiver, CBP can reduce the deadline from thirty days down to seven days for an importer to respond to a pre-penalty notice, and the period can in reality be shorter if CBP sends the notice by mail, which it is allowed to do. CBP can also deny an importer’s ability to file a supplemental petition.
It seems that most consultants and customs attorneys (no one in our firm) go out of their way to appease CBP, including having customers/clients automatically sign waivers. Perhaps this is out of fear of litigation. While we do not hold an absolute view, our firm considers CBP’s waiver requests with suspicion and we do not automatically advise that our clients sign waivers.
It does not make sense that CBP takes more than five years or six to decide whether to sue or not. The statutes of limitations are generous under customs law when compared to most other areas of law. In addition, memories fade and evidence dissipates with time, making it harder to prosecute a penalty case and sometimes even to defend against one. By signing a statute of limitations waiver, the importer is drawing out the administrative proceedings and litigation, which, of course, can be very expensive in the long run and can prevent the importer from moving forward.
CBP’s promise to “play nice” if the importer signs a statute of limitations waiver often rings hollow. By definition, CBP stopped playing nice when it issued a penalty or liquidated damages notice, thus forcing the importer into a defensive posture. The only way that CBP can start playing nice again is if it drops its penalty case (the agency almost never admits error) or greatly mitigates the penalty/liquidated damages claim. Waivers should be irrelevant to mitigation. CBP’s Mitigation Guidelines do not, and probably could not, condition mitigation on the importer signing of a statute of limitations waiver. CBP cannot also refuse to consider any substantive arguments or claims the importer timely offers. CBP cannot say, “we won’t listen to you if you don’t sign this statute of limitations waiver.” See United States v. Jean Roberts of Cal., Inc., 30 C.I.T. 2027 (2006) (“The demand by Customs that defendant waive the applicable statute of limitations for a two-year period in return for any consideration of these two claims for relief was neither justified under the applicable statute and regulations nor consistent with principles of equity and fairness”).
Thus, whether to sign a statute of limitations waiver is a question that is more complicated than traditionally perceived. It is, as always, fact and context specific, an option to be weighed in the course of seeking to settle an administrative case or a lawsuit to the importer’s benefit. What are the risks, who holds the advantage, and who is likely to blink? These questions are always present as parties contemplate litigation. An importer may prefer not to sign a waiver to force CBP’s hand, perhaps thinking that the agency will accept a tender that is smaller than it desires. The importer may bet on the reluctance by the US Department of Justice, the agency that must sue in the Court of International Trade to collect the penalty or liquidated damages claim, to expend prosecutorial and political capital on a piddly customs penalty case when the world offers so many more sexy and prominent opportunities. Even if it is sued, the importer may be confident that it will win before the Court of International Trade, the dispassionate tribunal that must review all the facts and law anew.
One of the best ways for an importer to save money is to reduce the duties it pays on imported merchandise to US Customs and Border Protection (CBP). A company can save thousands or even millions of dollars by classifying its merchandise under a heading with a lowest duty rate possible under the Harmonized Tariff Schedule of the US (HTSUS).
Importers commonly request that CBP classify items using the binding ruling request process. CBP publishes its rulings online (CBP’s Customs Rulings Online Search System or CROSS), an extraordinarily convenient and helpful service to the trade community, especially given the size of CBP’s electronic database (which consists of tens of thousands rulings). However, often CBP’s classification rulings can read like perfunctory edicts with little or no rationale. Sometimes rulings contradict each other, and it is not at all clear which ruling wins (although interested parties are allowed to report and challenge inconsistent rulings). Importers are often left to guess at CBP’s logic, to seek a pattern, to argue the merits of a preferred tariff classification, and to hope for the best.
There is also an unstated but obvious clash of interests between importers and CBP. Importers seek to classify their imported merchandise under HTSUS headings that impose the lowest duty rate possible. CBP is generally motivated in the opposite direction and, as a result, it can produce rulings that do not always correspond to the clear intent of the HTSUS or court precedent.
What happens if you don’t like CBP’s classification ruling? You can ask that CBP reconsider the ruling, but once you run out of administrative remedies, the question becomes: should you sue, as is your right, in the Court of International Trade?
Bringing a lawsuit made a lot more sense after the US Supreme Court rendered in 2002 its decision in Mead Corporation vs. U.S. The case is remarkable on many levels, including that the U.S. Supreme Court chose to hear an import/customs case, a true rarity. Writing for the majority, Justice Souter said that the courts should not use the Chevron standard (which requires an appellate court to generally defer to the administrative agency) when deciding a tariff classification appeal. Courts should instead use the watered-down standard of Skidmore vs. Swift.
Justice Souter wrote:
Under Skidmore, a classification ruling receives a measure of deference proportional to its "power to persuade." That power to persuade depends on the thoroughness evident in the classification ruling, the validity of its reasoning, its consistency with earlier and later pronouncements, the formality attendant the particular ruling, and all those factors that give it power to persuade. In addition, Customs' relative expertise in administering the tariff statute often lends further persuasiveness to a classification ruling, entitling the ruling to a greater measure of deference. While this court therefore recognizes its responsibility to accord a classification ruling the degree of deference commensurate with its power to persuade, this court also recognizes its independent responsibility to decide the legal issue regarding the proper meaning and scope of the HTSUS terms. This court construes a tariff term according to its common and commercial meanings, which it presumes are the same. To discern the common meaning of a tariff term, this court consults dictionaries, scientific authorities, and other reliable information sources.
The Skidmore standard provides importers with an enhanced opportunity to challenge CBP’s tariff classifications. The federal courts give CBP’s tariff classifications only the “power of persuade” deference, reviewing the arguments and evidence nearly as if presented for the first time. The importer, in essence, almost gets a mulligan or a do-over. As a result, there is now a healthy compilation of written opinions on tariff classification from the federal courts applying the General Rules of Interpretation and other canons of construction. These judicial edicts force greater transparency, logic, and predictability upon CBP’s tariff classification rulings. Importers can hold CBP accountable for incorrect tariff classifications.
It is surprising how few importers actually challenge CBP’s tariff classifications in light of the potential savings. There is, of course, no guarantee that filing a lawsuit will produce the desired tariff classification, and the merits and prospects for success of each case vary widely, but clearly challenging CBP should clearly be a possibility that importers may want to explore.
The Federal District Court, Southern District of New York, just decided a lawsuit called
Hanwha Corp. v. Cedar Petrochemicals (January 18, 2011) by applying the U.N. Convention on Contracts for the International Sale of Goods ("CISG"). This case reveals the dangers to parties of a contract when they fail to agree on terms, especially when the court relies on the CIGS. Often a court will look to industry standards or how the parties reached a meeting of the minds in the past in order to achieve a reasonable resolution in the present, to fill in the blanks, if you will. But sometimes, the court will find that the parties did not even have a contract and, of course, if there is no contract, the parties cannot sue, and certainly cannot collect, for breach of contract.
Before this lawsuit, Hanwha had ordered and purchased twenty shipments of petroleum products from Cedar Petrochemicals, and all these transactions went off without a hitch. On the twenty-first shipment, Hanwha ordered 1,000 metric tons of Toluene at $640 a ton. The parties, as was their practice, offered and countered offer regarding the applicable law even as they proceeded to finalize the letter of credit. Hanwa wanted Singapore law to determine any disputes between the parties, and Cedar Petrochemicals wanted New York law. Hanwha emailed Cedar Petrochemicals saying that there would be no contract unless Singapore law controlled. Cedar Petrochemicals then informed Hanwha that the deal was off and proceeded to sell the shipment to another party for $790.50 a ton, considerably more than Cedar Petrochemicals was going to pay.
The court decided that CISG must determine the outcome because the parties never agreed which law to apply. This, by itself, is significant because US courts tend to shy away from the CISG when given the chance. Then the court reviewed Article 19(1) of the CISG which reads "[a] reply to an offer which purports to be an acceptance, but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer." Parties and courts can easily use 19(1) to kill contracts when the parties are dithering. The court granted summary judgment in Cedar Petrochemical's favor and dismissed the lawsuit, concluding that the parties' inability to agree on the choice of law meant there was no contract. The court concluded that choice of law was material or essential to the parties. This decision could have easily gone the other way. The parties had agreed on price, produce, and delivery, as they had done twenty times before. That is usually sufficient to get you into court and keep you there (assuming there is sufficient evidence) on a breach of contract theory. When parties do not clearly set out the choice of law, courts usually resort to canons of construction and other means to apply the correct law. In fact, the court in this lawsuit did that when it concluded that CISG would control the outcome of the lawsuit.
Although the court does not say this, Hanwha's "no deal" email was what probably torpedoed its chances of recovery.
The lawsuit offers some valuable lessons. First, a working, consister history between buyer and seller is no substitute for making sure that your contracts are ironclad. Contracts become issues only when a party breaches, and if you have not protected yourself properly in a final, written form, you risk losing the deal and paying court costs. Second, if you are still negotiating and haggling, then you probably don't have a contract. Proceeding as if you do have a contract only invites tragedy. Finally, US courts are increasingly applying the CISG to international commercial disputes. If you do not know how the CISG works and you buy or sell over national borders, now is time to find out.
Principal and a founding member of GRVR Attorneys.