CIT Allows Penalty Action to Proceed Despite Separate Classification Case on Same Entries
The Court of International Trade denied Tenacious Holdings’ motion to dismiss a government penalty claim against it related to negligent misclassification of entries. Tenacious said the government should have brought its penalty action as part of the ongoing classification challenge related to the entries. But the court found that, given the idiosyncrasies of case filing procedures at CIT, requiring penalty actions to be filed as counterclaims in classification cases could have the perverse effect of allowing defendants in those penalty actions to run out the statute of limitations.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
Special CIT Rules Create Conundrum for Court
Under CIT’s separate rules of procedure, plaintiffs are allowed to begin cases just by filing a summons. The complaint setting out the plaintiffs’ claims is then due within 18 months, or longer if the court grants an extension. This is unlike the Federal Rules of Civil Procedure for most other federal courts, where cases begin when the complaint is filed.
Ergodyne filed a suit challenging CBP’s classification of its entries in July 2010, but did so by filing a summons. The court granted several extensions for Tenacious, Ergodyne’s successor, to file the complaint. The complaint in the classification case was finally filed in February 2013. In the meantime, the government filed this penalty case in June 2012 against Tenacious, alleging negligent misclassification of the entries at issue in the classification case, among others.
Tenacious then filed its motion to dismiss, arguing that CIT’s rules require that government penalty motions be filed as counterclaims, instead of as separate proceedings, if an existing CIT case pertains to the same entries. But as the legal term suggests, counterclaims can only be filed in response to a claim. Tenacious hadn't yet filed its complaint in the classification case, so there were no claims to respond to. By the time the government filed this penalty case in 2012, it was running up against the statute of limitations with no indication that Tenacious was about to file its complaint, it said. According to Tenacious, the government should have requested a court order to compel filing of the complaint, if it had statute of limitations concerns.
Court Decided on Purpose, Not Letter, of Rule
The court found that requiring the government file a motion to compel the complaint would be unfair. Such a reading would perversely allow plaintiffs to force defendants into motion practice just for the opportunity to file an answer, it said. And because those motions to compel must be granted by the court, there’s no guarantee a complaint would be filed, either, it said.
Instead CIT looked to the Supreme Court’s 1962 Southern Construction decision, which according to the court “shows that it is the purpose of the compulsory counterclaim rule that must be the ultimate touchstone in resolving a case in which procedural idiosyncrasies cloud proper application of the rule.” Given CIT’s unique rules, and the situation presented in the case, straightforward application of the counterclaim rule would be impossible, it said. The lack of activity in the related classification case means that the government was not engaging in gamesmanship by filing the separate penalty case, but was instead preserving its claims from the impending expiration of the statute of limitations. If either party wanted to litigate the classification and penalty cases together, that party could always file a motion to consolidate them, the court said.
(United States v. Tenacious Holdings, Inc., Slip Op. 13-62, dated 05/15/13, Judge Carman)
(Joshua Mandelbaum for plaintiff U.S. government; John Peterson of Neville Peterson for defendant Tenacious Holdings, Inc.)