CIT Orders Mediation in Misclassification Penalty Suit Over Government Objection
The Court of International Trade on Sept. 2 granted an importer’s request for referral to mediation of a misclassification penalty claim, despite objections from the government. Tenacious Holdings, formerly known as Ergodyne Corp., asked for “court-annexed mediation” to settle the case. The government opposed, arguing that Tenacious had only filed the request to avoid a deadline to provide certain documents in discovery. CIT decided that there is no downside to mediation in the case, and it may be the best way to resolve the dispute given the small dollar amount at issue.
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The penalty claim stems from government allegations that Tenacious negligently misclassified work gloves. A separate case is ongoing related to the classification issues themselves (see 13051529). Under court-annexed mediation, a neutral third party facilitates confidential negotiations between the parties with an eye toward settling the case. The process is designed to expand settlement options and promote clear communication between the parties. Tenacious said court-annexed mediation would be especially fruitful because penalty cases often settle, and only $50,000 is at stake, which might be exceeded in this case by the costs of litigation. The outcome of the classification dispute is now moot because the relevant tariff provisions have changed, so neither side has a stake in the future application of the court’s ruling. The confidentiality of court-annexed mediation may also allow Tenacious to more fully discuss certain issues without waiving attorney-client privilege, it said.
The government countered that Tenacious had suspiciously filed the request for mediation right before it was due to produce certain documents, and the motion was merely an attempt to avoid the discovery deadline. It said it is taking the case “very seriously,” and the low penalty amount and lack of precedential value is no issue. Mediation would go nowhere before certain issues are clarified both by the judge and by the discovery of documents, said the government.
Despite the government’s arguments to the contrary, CIT found that the low penalty amount and outdated tariff provision meant mediation was likely to be successful. Even if mediation was unsuccessful, the government could still come back and have the court decide the case, it said. Cases that go to court-ordered mediation settle just as often as those that go to voluntary mediation, said CIT, so “if the government approaches the process with good faith, as the Court expects it to do, it may be surprised to find that the case is more amenable to disposition than the government fears.”
(United States v. Tenacious Holdings, Inc., Slip Op. 14-101, dated 09/03/14, CIT No. 12-00173, Judge Carman)
(Attorneys: John Peterson of Neville Peterson for plaintiff Tenacious Holdings, Inc.; Joshua Mandlebaum for defendant U.S. government)