CAFC Indicates Narrow Approach in Controversial ICP Case on Notices of Action 'Revoking' CBP Rulings

Controversial Case Fueled by $300 Million Duty Dispute

CIT’s November 2012 decision found that a notice of action reclassifying 99 entries of white sauce imported by International Custom Products (ICP) improperly revoked an earlier ruling letter (see 12112123). CBP’s 1999 ruling had found the white sauce was classified as a sauce and dutiable at 6.6%. But the 2005 notice of action instead said 99 subsequent entries were instead dairy products, which were subject to a duty of $1,996/kg, representing a 2,400 percent increase in duty liability on the 99 ICP white sauce entries). That cost the company $300 million, and put it out of business (see 12121239). CIT said the notice of action was in effect an “interpretive ruling or decision” that improperly revoked the earlier ruling letter without the notice and comment period required for “interpretive rulings or decisions” by 19 USC 1625(c).

By calling the notice of action an “interpretive ruling or decision,” the lower court’s decision could place severe limits on CBP’s flexibility, argued the government. “The reason we’re appealing this is because … the trial court found that the notice of action equated with an interpretive ruling or decision,” said Edward Kenny, trial attorney at the Justice Department. “That has a vast detrimental effect to Customs and the way they operate,” he said.

Kenny did not dispute that ICP’s white sauce may have conformed to the ruling all along, but instead found fault with the avenue ICP chose to dispute the notice of action. Rather than arguing that the notice of action was in effect a ruling revocation under 19 USC 1625(c) that required notice and comment, ICP should have protested the reclassification as it would have any other notice of action, and then challenged the protest denial if it wasn’t happy with the result. The Court of International Trade in turn erred by finding the notice of action was an “interpretive ruling or decision” governed by Section 1625(c), Kenny argued.

But all three judges on the panel questioned whether the particular notice of action issued to ICP was any different from a ruling revocation, regardless of what CBP wanted to call it. “I know what you say a notice of action is,” said CIT Judge O’Malley, “but you applied it here in a way that covered all shipments, including past shipments as well as all future shipments,” she said. “Isn’t the problem that you actually gave the notice of action the effect of a revocation, regardless of what you called it?” The government highlighted the differences between notices of action and ruling letters, arguing that notices of action are port-specific and can’t revoke national-level ruling letters issued by CBP headquarters. But this ruling letter may have been different. “I’d agree with you, Mr. Kenny. It can’t,” said Judge Wallach. “It’s just that it did.”

Different Judges May Have Saved ICP From Bankruptcy

Another aspect of the ICP case that came up during oral argument was the difficulty in setting right any injustice should the Appeals Court find against the government and affirm CIT’s decision. The company is already bankrupt and out of business, in part because of a 2006 decision by CAFC that it had to pay the increased duties on each entry before it could challenge the notice of action on traditional denied protest grounds.

By law, CIT only has jurisdiction to hear cases in certain situations. The trade court had in 2005 invalidated the ICP notice of action under the 28 USC 1581(i) jurisdiction provision for trade cases where no other avenue to the court is available to an importer (“residual” jurisdiction) (see 06030725). CAFC’s 2006 decision overruled the lower court, finding ICP should have brought the case under 28 USC 1581(a) “denied protest” grounds, which requires payment of duties (see 06030725). Given the high amount of duties owed, ICP was only able to pay and challenge one entry. ICP later challenged the constitutionality of the duty payment requirement on 13 other entries of white sauce, but CIT denied the challenge in September (see 13090501).

Now it’s too late to save the company, said Greg Teufel of Eckert Seamans, who represents ICP. “We were forced into a jurisdictional hole that did not allow for faster relief,” he told the three-judge panel during oral argument. “It’s unfortunate. I wish that 1581(i) were available to importers to immediately say, ‘look, you’re putting me out of business here.’” Said Teufel. “It’s not adequate to go through the protest procedure. I think this case proves it wasn’t adequate,” he said. “But, it is what it is, and here we are.”

Judges Reyna and O’Malley indicated the outcome of the jurisdiction question may have been different had they decided the case. “From my own perspective, I think these are the type of cases that do fall under 1581(i),” said Reyna. Neither Reyna, O’Malley, nor Wallach sat on the court when the case was decided in 2006. “Maybe we should revisit that question,” said O’Malley. “But we can’t do that on this panel, or on this appeal.”

A recording of the oral argument is (here).