International Custom Products, Inc. v. United States
2013 CIT 120
Ct. Intl. Trade
2013

Background

  • Plaintiff International Custom Products (ICP) imported a product called “white sauce” and had an advance ruling (NYRL D86228) classifying it under HTSUS 2103.90.90 (6.4% ad valorem).
  • In 2005 Customs issued a Notice of Action reclassifying numerous entries as dairy spread under HTSUS 0405.20.3000 at $1.996/kg, increasing duties on affected entries by ~2400%.
  • ICP filed multiple protests; a protest covering 13 entries was denied and ICP has not paid duties on those 13 entries (approx. $28 million), though related protests were placed in suspended status pending separate litigation.
  • ICP sued in the Court of International Trade raising nine counts, alleging wrongful revocation/reclassification, APA and regulatory violations, and constitutional claims including denial of access to courts and as-applied/unconstitutional application of 28 U.S.C. § 2637(a).
  • The government moved to dismiss Counts 1–8 for lack of subject-matter jurisdiction (failure to prepay duties per 28 U.S.C. § 2637(a)) and Counts 8–9 alternatively for failure to state a claim.
  • The court dismissed Counts 1–8 for lack of jurisdiction and dismissed Count 9 for failure to state a constitutional claim, but retained jurisdiction over Count 9 for decision before dismissing it on the merits.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether CIT has §1581(a) jurisdiction over Counts 1–8 despite ICP not prepaying duties per 28 U.S.C. §2637(a) ICP argued the Court should hear the protest challenges even though it has not prepaid the assessed duties on the 13 entries. The government argued §2637(a) is a jurisdictional precondition and ICP’s failure to prepay deprives the court of §1581(a) jurisdiction. Court: Dismissed Counts 1–8 for lack of subject-matter jurisdiction; prepayment requirement is a strict condition of waiver.
Whether ICP can invoke §1581(i)(4) to bypass §1581(a) prepayment requirement ICP contended that §1581(i)(4) provides jurisdiction because it has no adequate remedy under §1581(a). Gov't: Plaintiff cannot circumvent §1581(a) prerequisites by invoking §1581(i). Court: §1581(i) cannot be used to evade §1581(a) where §1581(a) is the traditional avenue; Counts 1–8 still dismissed.
Whether the CIT has jurisdiction to hear Count 9 (constitutional challenge to §2637(a)) ICP alleged §2637(a) (prepayment) violates First and Fifth Amendment rights as applied and sought declaratory relief striking the prepayment requirement for this case. Government did not contest jurisdiction but argued §2637(a) is constitutional and well-established. Court: Has jurisdiction under §1581(i) to hear Count 9 (constitutional challenge to statute) but ultimately dismissed Count 9 for failure to state a constitutional claim.
Whether §2637(a) as applied here violates the Constitution (access to courts / due process) ICP argued that demanding prepayment of ~$28M (2400% increase) effectively denies access to courts and due process. Gov't relied on long-standing precedent upholding prepayment as a valid waiver condition and analogous tax prepayment doctrines. Court: Although the facts are harsh, the prepayment requirement does not violate the Constitution; Count 9 dismissed for failure to state a claim.

Key Cases Cited

  • NEC Corp. v. United States, 806 F.2d 247 (Fed. Cir.) (conditions of sovereign immunity waiver must be strictly observed)
  • AutoAlliance Int’l, Inc. v. United States, 357 F.3d 1290 (Fed. Cir.) (strict construction of jurisdictional prerequisites to sovereign immunity waiver)
  • Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir.) (failure to comply with terms of consent to suit deprives court of jurisdiction)
  • Am. Air Parcel Forwarding Co. v. United States, 718 F.2d 1546 (Fed. Cir.) (cannot circumvent §1581(a) prerequisites by invoking §1581(i))
  • Int’l Custom Prods. v. United States, 467 F.3d 1324 (Fed. Cir.) (plaintiff must use §1581(a) when available and meet its prerequisites)
  • Arbaugh v. Y&H Corp., 546 U.S. 500 (U.S.) (court must independently ensure subject-matter jurisdiction)
  • Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (U.S.) (jurisdictional inquiry principles)
  • Koike Aronson, Inc. v. United States, 165 F.3d 906 (Fed. Cir.) (§1581(a) hears appeals from denials of valid protests)
  • Orleans Int’l, Inc. v. United States, 334 F.3d 1375 (Fed. Cir.) (§1581(i) appropriate for certain constitutional challenges where Customs has no discretion)
  • Flora v. United States, 362 U.S. 145 (U.S.) (tax prepayment doctrines and legislative remedies for hardship)
  • Cheatham v. United States, 92 U.S. 85 (U.S.) (historical affirmation of prepayment as condition precedent to suit)
  • United States v. Clintwood-Elkhorn Mining Co., 553 U.S. 1 (U.S.) (tax prepayment analogs)
  • Johnston v. Comm’r of Internal Revenue, 429 F.2d 804 (6th Cir.) (prepayment condition does not deny fundamental fairness under Fifth Amendment)
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