ARP Materials, Inc. v. United StatesARP Materials, Inc. v. United States
OPINION
[Defendant’s motion to dismiss for lack of subject-matter jurisdiction is granted.]
Dated: June 11, 2021
Christopher M. Kane, Daniel J. Gluck, and Mariana del Rio Kostenwein, Simon Gluck & Kane LLP of New York, NY, on the brief for Plaintiffs.
Baker, Judge: In these cases, two importers invoke
Based on the USTR’s rescission of the retaliatory tariffs, one of the importers timely protested Customs’ classification decision as to certain of the goods in question. Customs duly reclassified the goods as exempt from the tariffs and the importer received a refund after this litigation began. As to those goods, the importer’s refund claim is moot and the court lacks constitutional subject-matter jurisdiction.
As to the remaining goods at issue in these suits, the importers could have timely protested Customs’ classification decisions. If Customs had denied such protests, the importers then could have sought relief in this court by invoking its jurisdiction under
Statutory and Regulatory Background
A. The classification of imported goods
Goods imported into the United States are subject to a process known as “classification.” This statutorily mandated process requires Customs to determine where such goods fit into the Harmonized Tariff Schedule of the United States (HTSUS),
The HTSUS is a systematic organizational code of headings and subheadings: “[T]he headings set forth general categories of merchandise, and the subheadings provide a more particularized segregation of the goods within each category.” Wilton Indus., Inc. v. United States, 741 F.3d 1263, 1266 (Fed. Cir. 2013). In effect, the HTSUS is for imported goods what the Dewey Decimal System is for library books.
In classifying imported goods for tariff purposes, Customs assigns them to an HTSUS subheading code, which determines the applicable duty rate. See Alexander W. Koff, Tina Potuto Kimble, & Gus Coritsidis, “International Trade Disputes,” in International Aspects of U.S. Litigation, A Practitioner’s Deskbook 934 (2017). Customs’ determination of which HTSUS subheading to assign is critical because the applicable duty, or tariff, can vary considerably depending on which HTSUS subheading applies. See id. at 934 n.66. Customs assigns the HTSUS code applicable to the import on the date of entry.
By statute, “decisions of [Customs], including the legality of all orders and findings entering into the same,” as to, inter alia, “the classification and rate and amount of duties chargeable,” even if that decision is erroneous, “shall be final and
“Liquidation” refers to the process by which an importer’s liability is fixed based on duties owed upon the date of entry. Upon entry of goods, the importer must deposit estimated duties and fees with Customs. Subsequently, Customs “liquidates” the entry to make a “final computation or ascertainment of duties owed” on that entry of merchandise.
Liquidation also necessarily includes Customs’ final determination regarding classification of that entry of merchandise. See Corporate Counsel’s Guide to Importation Under the U.S. Customs Law § 1:112 (2020); see also Chemsol, LLC v. United States, 755 F.3d 1345, 1350 (Fed. Cir. 2014) (“This court has confirmed that liquidation is the final challengeable event and findings related to liquidation . . . merge with the liquidation.“) (cleaned up); Volkswagen of Am., Inc. v. United States, 532 F.3d 1365, 1370 (Fed. Cir. 2008) (characterizing circuit precedent as standing for the proposition that “all aspects of entry [are] merged in the liquidation“) (citing United States v. Utex Int’l, Inc., 857 F.2d 1408, 1409–10, 1412 (Fed. Cir. 1988)). Liquidation normally occurs within one year of entry, though it may occur later under certain circumstances.
Following liquidation, Customs either collects any additional amounts due, with interest, if the importer’s deposit was lower than the final assessment or refunds any excess deposit, with interest, if the deposit was higher than the final assessment.
A protest challenging classification may lead to “reliquidation.” As the term implies, reliquidation means Customs re-assesses the duties and fees due. If Customs grants the protest and reclassifies the entry under an HTSUS code subject to a lower rate of duty, Customs must recalculate the amount due—hence, “reliquidation.”
B. The USTR’s imposition of Section 301 duties
Section 301 of the Trade Act of 1974 authorizes the USTR to take various actions to protect U.S. interests when foreign trade partners violate trade agreements or otherwise take actions adverse to U.S. trade interests. See
After finding that China’s conduct was actionable under the statute, the USTR proposed an additional 25 percent ad valorem duty on various products imported from that country. Notice of Determination and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,
The USTR later imposed Section 301 tariffs on goods from China via a series of “tranches,” or “lists,” referred to as List 1 through List 4B. The USTR imposed the tariffs by inserting new subheadings into the HTSUS to encompass the articles on the lists. See, e.g., Notice of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,
The USTR’s imposition of Section 301 duties was not self-executing, however. To effectuate these duties as to any given entry of imports, Customs first had to classify the entries under the applicable HTSUS subheadings. Any importer that contended Customs erroneously classified its imports under the subheadings subject to Section 301 tariffs could, after the entries liquidated, protest such classification as discussed above.
C. The USTR’s retroactive exclusions from Section 301 duties
The USTR’s notices of Section 301 duties also stated that importers could request that specific products classified within an affected tariff heading be excluded (that is, exempted) from such duties. See
The notices directed importers seeking exclusions to identify “the particular product in terms of the physical characteristics . . . that distinguish it from other products within the covered 8-digit subheading,” and noted that the USTR would “not consider [exclusion] requests that identif[ied]
For both the List 2 and List 3 processes, the USTR posted web pages further notifying importers that “[a]n exclusion, if granted, will apply to the particular product covered by the exclusion, and will not be tied to particular producers or exporters.” List 2 FAQs at 4;6 List 3 FAQs at 5 (same).7
Thus, because exclusions were “product-specific,” the grant of an exclusion in response to one importer’s application could apply to like products imported by other entities. The USTR implemented exclusions by inserting new subheadings into the HTSUS to encompass the articles covered by granted exclusions. See, e.g., Notice of Product Exclusions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,
Just as the USTR’s initial imposition of Section 301 duties was not self-executing as to any entry of goods and instead depended upon Customs’ classification of the entry as subject to such duties, the USTR’s retroactive exclusions were not self-executing as to the eligible goods. See id. at 37,381 (“[T]he exclusions are available for any product that meets the description in the Annex, regardless of whether the importer filed an exclusion request.“) (emphasis added). The USTR stated that Customs “will issue instructions on entry guidance and implementation.” Id.
Customs in turn issued instructions for obtaining refunds of Section 301 duties as to eligible imports:
To request a refund of Section 301 duties paid on previous imports of duty-excluded products granted by the USTR, importers . . . may protest the liquidation.
U.S. Customs and Border Protection, Cargo Systems Messaging Service, CSMS #39169565—GUIDANCE: Seventh Round of Products Excluded from Section 301 Duties (Tranche 2);8 see also U.S. Customs and Border Protection, Cargo Systems Messaging Service, CSMS #42181055—GUIDANCE: Section 301 Tranche 3—$200B Eleventh Round of Product Exclusions from China (substantively identical instructions).9 That is, an importer wishing to seek a refund of Section 301 duties had to protest Customs’ liquidation classifying the imports as subject to those duties.
Customs also stated that it would postpone ruling on any protests that included claims based on pending product exclusions until after the USTR ruled on the exclusion requests, at which time Customs would process the protests pursuant to the
In short, the USTR and Customs established a system under which parties could apply for exclusions and could benefit from other parties’ exclusion requests granted by the USTR. Insofar as the exclusions applied retroactively to entries for which importers had previously paid Section 301 tariffs, Customs would effectuate the exclusions by reclassifying imports to Section 301-duty-free HTSUS subheadings upon an importer’s timely protest of the entry’s original liquidation.
Factual and Procedural Background11
A. Facts relating to ARP
ARP Materials, Inc., alleges that it made five entries (importations) of merchandise under
On July 31, 2019—after ARP’s five entries at issue—the USTR granted exclusion requests submitted by other importers that covered the same category of products (as well as other products). Notice of Product Exclusions,
As to its four remaining entries, ARP took untimely action or no action. ARP protested Customs’ assessment of Section 301 duties on entries ’4968-3 and ’5369-3, but it did so more than 180 days after those entries’ liquidation. Customs denied the protest as untimely. Case 20-144, ECF 21-1, Pugh Decl. ¶ 9;16 Case 20-144, ECF 23, at 18 (Plaintiffs conceding the government’s factual chronology). ARP did not file protests for entries ’5259-6 and ’5611-8. See Case 20-144, ECF 21-1, Pugh Decl. ¶¶ 10–11 (citing these entries and not discussing any protests, unlike the other entries for which the declaration cites protest dates and outcomes); Case 20-144, ECF 23, at 18 (Plaintiffs conceding that ARP did not file protests for these two entries).
The following chart17 summarizes ARP’s entries at issue here that were eligible for reclassification based on the USTR’s July 31, 2019, exclusion notice:
| Entry # | Entry date | Liquidation date | Protest status |
|---|---|---|---|
| F57-4005259-6 | Aug. 30, 2018 | July 26, 2019 | None filed |
| F57-4004968-3 | Sept. 21, 2018 | Aug. 16, 2019 | Filed March 2, 2020; denied as untimely |
| F57-4005369-3 | Sept. 24, 2018 | Aug. 16, 2019 | Filed March 2, 2020; denied as untimely |
| F57-4005611-8 | Sept. 27, 2018 | Aug. 23, 2019 | None filed |
| F57-4007552-2 | July 17, 2019 | June 12, 2020 | Filed June 27, 2020; granted |
B. Facts relating to Harrison
Harrison Steel Castings Co. alleges that it made two entries of merchandise under
After the two entries in question, Customs granted exclusion requests submitted by other importers that covered the same category of products as Harrison’s (as well as other products). Notice of Product Exclusions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,
The USTR published its exclusion notice on March 26, 2020, more than 180 days after the liquidation of Harrison’s entries. To protect its right to take advantage of these exclusions, which as noted above were not self-executing,20 Harrison needed to file protective protests based on the then-pending exclusion requests prior to the 180-day protest deadline. As such exclusion requests were filed and pending prior to liquidation of Harrison’s entries, Harrison had the full 180 days to file protective protests as to the classification of both of its entries.21
On March 31, 2020—five days after Customs published notice of the relevant exclusion but more than 180 days after the liquidation dates of the two entries at issue—Harrison filed a protest challenging Customs’ assessment of Section 301 duties on these entries and two other entries not included in Harrison’s complaint. Case 20-147, ECF 20-1, Pugh Decl. ¶¶ 4–6; Case 20-147, ECF 22, at 25 (Harrison conceding accuracy of dates stated in Pugh declaration). Customs denied the protest as untimely as to the two entries at issue but granted the protest as to the other two entries.22 Case 20-147, ECF 20-1, Pugh Decl. ¶ 6; Case 20-147, ECF 22, at 26.
The following chart23 summarizes Harrison’s entries at issue here that would have been eligible for reclassification based on the USTR’s March 26, 2020, exclusion notice had Harrison filed protective protests to preserve its rights pending the USTR’s consideration of the relevant exclusion requests:
| Entry # | Entry date | Liquidation date | Protest status |
|---|---|---|---|
| 555-0666283-6 | Sept. 27, 2018 | Aug. 23, 2019 | Filed March 31, 2020; denied as untimely |
| 555-0666818-9 | Oct. 12, 2018 | Sept. 6, | Filed March 31, 2020; denied as untimely |
C. These suits
After Customs denied their protests, ARP and Harrison brought these suits. As amended, their substantially identical complaints allege that they were the importers of record for the merchandise identified in the charts above and that they paid Section 301 duties on such merchandise. ECF 14, ¶¶ 4, 8, 11, 12.24 Without articulating any legal theory or cause of action, they assert in their cryptic complaints that the U.S. government is “in wrongful possession of the [S]ection 301 duties on [the relevant] merchandise as the USTR has determined that no such duties apply ab initio to the date of implementation of 301 duties on [Lists 2 and 3] of the affected items previously announced by the USTR.” Id. ¶ 13. Plaintiffs seek a refund of “monies
originally collected beginning on August 23, 2018 pursuant to the authority of [Section 301].” Id. ¶ 5.25
The government moves to dismiss both cases under
Standard of Review
A
A “facial” challenge is one in which the movant “simply challenges the court‘s subject matter jurisdiction based on the sufficiency of the pleading‘s allegations,” in which case the allegations are accepted as true and construed in a light most favorable to the complainant. Id. (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). The same standard governs a
A “factual” challenge, in contrast, is one in which the movant “denies or controverts the pleader‘s allegations of jurisdiction,” and in those cases “the movant is deemed to be challenging the factual basis for the court‘s subject matter jurisdiction.” Id. In cases involving “factual” challenges, “the allegations in the complaint are not controlling and only uncontroverted factual allegations are accepted as true for purposes of the motion.” Id. (cleaned up) (citing, inter alia, Gibbs v. Buck, 307 U.S. 66, 72 (1939)); see also Aerolineas Argentinas v. United States, 77 F.3d 1564, 1572 (Fed. Cir. 1996) (“A party may challenge the court‘s jurisdictional authority by denying or controverting necessary jurisdictional allegations. When such challenge is made the court may consider evidence outside the pleadings to resolve the issue.” (cleaned up and citing, inter alia, KVOS, Inc. v. Associated Press, 299 U.S. 269, 278 (1936)))).
Discussion
Plaintiffs’ amended complaints invoke
importation of merchandise for reasons other than the raising of revenue.”
In its motion to dismiss for lack of subject-matter jurisdiction, the government argues that Plaintiffs challenge “the tariff classification and applicable duty rate that [Customs] applied to these entries at liquidation.”
As a preliminary matter, Plaintiffs acknowledge that
Without this limiting interpretation, the court‘s residual jurisdiction under
Thus, determining whether jurisdiction exists under
The court therefore considers whether
I.
The government argues that Plaintiffs’ challenge is to Customs’ “liquidation of their entries in a manner that did not account for the product exclusions granted by the USTR.” ECF 21, at 25. Specifically, the government contends that Plaintiffs’ challenge is to Customs’ liquidation of their entries based on the wrong HTSUS tariff classification. Id. at 28. Thus, according to the government, “this process involved a protestable decision by [Customs],” id. at 25, meaning that
Plaintiffs do not dispute the principle that Customs can make protestable decisions while implementing another agency‘s instructions. Instead, they retort that their mere filing—and Customs’ entertaining—of protests as to some of the entries at issue in this suit (and others) does not foreclose jurisdiction under
In U.S. Shoe, an exporter brought an action in the CIT under
In Gilda, an importer brought an action in the CIT under
On appeal, the Federal Circuit held that
In Industrial Chemicals, retroactive legislation exempted an importer‘s entries from duties but imposed a deadline to request a refund. The importer unsuccessfully requested refunds from Customs after the statutory deadline, and thereafter protested. After Customs denied the protest, the importer brought an action under
In Mitsubishi, an importer brought an action in the CIT challenging Customs’ denial of its protest of its antidumping duty rate and invoked
Given the teaching of U.S. Shoe, Gilda, Industrial Chemicals, and Mitsubishi, jurisdiction under
ARP‘s complaint31 alleges in relevant part:
4. Plaintiff, ARP, is the importer of record of the merchandise upon which the retaliatory duties
that are the subject of this action were assessed and paid.
5. This case is brought to compel the Defendant United States to refund monies originally collected beginning on August 23, 2018 pursuant to the authority of
6. Subsequently on July 31, 2019 (84 Fed. Reg. 37381 et seq.) the USTR announced certain retroactive exclusions from the effects of retaliatory duties under USTR Docket 2018-0018, including products imported under subheading 3901.90.1000, Harmonized Tariff of the United States [sic] (“HTSUS“).
* * *
11. The imported merchandise involved in this claim consists of the items entered through the Ports of the United States on or after August 23, 2018 under subheading 3901.90.1000, HTSUS. See Exhibit.
12. The regular duties, taxes and fees plus USTR applied duties under section 301 of the Trade Act of 1974 have been paid.
13. The United States remains in wrongful possession of the section 301 duties on ARP‘s entries of 3901.90.1000, HTSUS, merchandise as the USTR has determined that no such duties apply ab initio to the date of implementation of 301 duties on “List 2” of the affected items previously announced by the USTR.
Case 20-144, ECF 14, ¶¶ 4–6, 11–13 (emphasis added).
On the face of Plaintiffs’ complaints, “the particular agency action that is the source of the alleged harm” is the entry of the merchandise under the HTSUS subheadings subject to Section 301 duties. That is, Plaintiffs challenge Customs’ classification of the merchandise under HTSUS subheadings 3901.90.1000 (in the case of ARP) and 8302.30.3060 (as to Harrison). According to Plaintiffs, the USTR‘s retroactive exclusions rendered Customs’ classification of their merchandise under those subheadings “wrongful.”
Plaintiffs’ response to the government‘s motion confirms this reading of their complaints. They repeatedly emphasize that they seek to “enforce” the USTR‘s Section 301 exclusions. See ECF 23, at 18 (stating that in filing its protests, “ARP was seeking to enforce the USTR‘s retroactive exclusion decision“); at 42 (“Plaintiffs here seek enforcement of the USTR‘s decisions to retroactively rescind 301 duties that the USTR determined never should have been assessed and collected in the first instance“); at 44 (“[I]t is the USTR‘s decisions that Plaintiffs seek to enforce in their cases“); at 46 (“Defendant‘s motion, if granted, would deny Plaintiffs access to the Court to enforce the USTR‘s decisions relative to their imports of goods retroactively excluded from . . . 301 duties, and make the decisions of the USTR subject to an absurd interpretation by [Customs].” (emphasis added)).
But Customs’ classifications of Plaintiffs’ entries were protestable “decisions” of that agency by statutory definition. See
Customs’ classification determinations as to Plaintiffs’ entries were necessarily protestable “decisions” because the agency had to “[f]irst, ascertain[] the meaning of specific terms in the [HTSUS] provision[,] and second, determin[e] whether the goods come within the description of those terms.” StoreWALL, LLC v. United States, 644 F.3d 1358, 1361–62 (Fed. Cir. 2011) (noting that “[p]roper classification of goods under the HTSUS entails a two step process“). The former determination was a question of law, Baxter Healthcare Corp. of P.R. v. United States, 182 F.3d 1333, 1337 (Fed. Cir. 1999), while the latter was a question of fact, see id. (“Determining whether a particular imported item falls within the scope of the various classifications as properly construed is a question of fact.” (quoting Bauerhin Techs. Ltd. P‘ship v. United States, 110 F.3d 774, 776 (Fed. Cir. 1997))).
Unlike in U.S. Shoe or Mitsubishi, Customs here performed more than a passive or ministerial function; in classifying Plaintiffs’ entries under HTSUS subheadings subject to Section 301 duties, it made substantive legal (interpreting the HTSUS subheadings) and factual (determining whether the entries fell within those subheadings) determinations that it had the authority to make. These determinations required Customs to exercise “genuine interpretive or comparable judgments.” Thyssenkrupp, 886 F.3d at 1225.
Accordingly, this case “presents exactly the scenario in which
And unlike in Gilda and Industrial Chemicals, Customs indisputably had the authority to grant Plaintiffs their requested relief in these protest actions—reclassification of their entries under different subheadings that were not subject to the retaliatory duties, resulting in the refund of the previously paid duties. Indeed, precisely because Customs had and exercised such authority after ARP timely protested as to one entry, see above note 25, this suit is partially moot.
II.
Even if jurisdiction otherwise exists under another subsection of
“[T]o be manifestly inadequate, the protest must be an exercise in futility, or incapable of producing any result; failing utterly of the desired end through intrinsic defect; useless, ineffectual, vain.” Sunpreme Inc. v. United States, 892 F.3d 1186, 1193–94 (Fed. Cir. 2018) (cleaned up and quoting Hartford Fire Ins. Co. v. United States, 544 F.3d 1289, 1294 (Fed. Cir. 2008)). It is axiomatic that a party‘s failure to timely invoke a remedy does not make it inadequate. Juice Farms, Inc. v. United States, 68 F.3d 1344, 1346 (Fed. Cir. 1995) (citing Omni U.S.A., Inc. v. United States, 840 F.2d 912, 915 (Fed. Cir. 1988)).
ARP‘s moot claim (due to its successful protest) as to entry ‘7552-2 and Harrison‘s successful protests as to two entries not included in its complaint amply demonstrate that far from being exercises in futility, timely protests on their part as to the remaining entries at issue in these suits were opportunities for picking low-hanging fruit. Cf. Carbon Activated Corp. v. United States, 6 F. Supp. 3d 1378, 1380 (CIT 2014) (finding the remedy adequate where
Juice Farms is also instructive. In that case, Commerce suspended liquidation of an importer‘s entries pending completion of an antidumping investigation, but Customs mistakenly liquidated 20 entries while the suspension orders remained in effect and issued “bulletin notices” advising of the liquidations. The importer, however, did not diligently check for bulletin notices and learned of the liquidations only after the protest period had expired. 68 F.3d at 1345.
The Federal Circuit observed that by statute, “all liquidations, whether legal or not, are subject to the timely protest requirement” and found that the bulletin notices constituted adequate notice to the
The same is true here—Plaintiffs had adequate notice of the procedures they were to follow to correct Customs’ erroneous classification decisions, and the record shows that they did follow those procedures to receive refunds as to certain entries, thus partially mooting this litigation. As to the entries remaining at issue here, however, Plaintiffs regrettably dropped the ball. Cf. Degussa Canada Ltd. v. U.S., 87 F.3d 1301, 1304 (Fed. Cir. 1996) (“Degussa‘s unfortunate situation of having paid a duty that, it subsequently turned out, it should not have paid, is of its own making. Degussa could have avoided the problem if it had filed a timely protest to the . . . classification [of its entry].“).
Conclusion
For the reasons explained above, the court lacks constitutional subject-matter jurisdiction as to one of ARP‘s entries and statutory subject-matter jurisdiction as to the remainder of its and Harrison‘s entries.32 The court therefore grants the government‘s Rule 12(b)(1) motions to dismiss and will enter judgment dismissing these cases. See
Dated: June 11, 2021
M. Miller Baker
New York, NY
M. Miller Baker, Judge
Notes
(1) In addition to the jurisdiction conferred upon the [CIT] by subsections (a)–(h) of this section and subject to the exception set forth in subsection (j) of this section, the [CIT] shall have exclusive jurisdiction of any civil action commenced against the United States, its agencies, or its officers, that arises out of any law of the United States providing for—
- revenue from imports or tonnage;
- tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue;
- embargoes or other quantitative restrictions on the importation of merchandise for reasons other than the protection of the public health or safety; or
- administration and enforcement with respect to the matters referred to in subparagraphs (A) through (C) of this paragraph and subsections (a)–(h) of this section.