CAFC Backs Trade Court in White Sauce Classification Case on Notices of Action
The U.S. Court of Appeals for the Federal Circuit on April 14 upheld a lower court ruling in a contentious dispute over CBP’s reclassification of white sauce imported by International Custom Products. As it had foreshadowed during oral argument, CAFC ruled that a CBP notice of action effectively revoked a 1999 ruling letter on the white sauce, which means it was an “interpretive ruling or decision” that should have been subject to notice and comment under 19 USC 1625(c).
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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). The Court of International Trade in 2012 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) (see 12112123).
Calling the notice of action an “interpretive ruling or decision” could place severe limits on CBP’s flexibility, said the government during oral argument in February (see 14021001). “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.
But the appeals court found that, under the circumstances, the notice of action was more like a ruling revocation than an entry-specific “courtesy notice.” Notably, the notice of action applied to all future entries of CBP’s white sauce, saying that “all shipments” of white sauce “must be classified” under the dairy subheading. “This broad proclamation effectively revoked the classification set forth in the ruling letter,” said Circuit Judge Evan Wallach in the opinion.
CAFC disagreed that calling International Custom Products’ notice of action an interpretive decision would be such a game changer. “CIT did not hold that all notices of action are now subject to notice and comment procedures,” said Judge Wallach. “The CIT held only that the Notice of Action in this case -- which effectively revoked the Ruling Letter and was issued after relevant [CBP Office of Regulations and Rulings] deliberation -- was subject to § 1625(c)’s [notice and comment] procedures. To the extent the Government is not using notices of action to surreptitiously revoke ruling letters, its slippery slope argument is vastly overstated.”
ICP's lawyer Gregory Teufel of Eckert Seamans told us he doesn't think the government will seek a rehearing or Supreme Court review. The case wasn't close enough to expect a different result if the case is decided "en banc" by the whole CAFC, and the decision isn't the type of case the Supreme Court usually takes up, he said. Meanwhile, there are two other cases on ICP's white sauce that are currently moving through the courts, said Teufel. One decided by CIT in September and currently subject to a motion for reconsideration involves a constitutional challenge to the requirement that importers pay duties before filing customs classification lawsuits. The other is a government lawsuit against ICP's surety, said Teufel. The Justice Department did not immediately respond to a request for comment.
(International Custom Products v. U.S., Fed. Cir. 13-1176, dated 04/14/14, Judges Wallach, O’Malley and Reyna)
(Attorneys: Gregory Teufel for plaintiff-appellee International Custom Products; Edward Kenny for defendant-appellant U.S. government)