Motions for Reconsideration Denied in Tariff Gender Discrimination Case
11/05/08 11:04 PM
On November 4, 2008, the U.S.
Court of International Trade issued an order denying both the importer’s and
the United States’ motions for reconsideration of the Court’s July
3, 2008 decision.
In its original complaint, importer Totes Isotoner Corporation ("Totes") alleged that the Harmonized Tariff Schedule of the United States (HTSUS) illegally discriminated on the basis of gender and/or age by setting out different tariff rates for “men’s” gloves and for “other” gloves. The court dismissed Totes’ claim on the grounds that the complaint did not allege facts sufficient to establish an inference of discrimination.
Both parties sought reconsideration of the the court's July 3, 2008 opinion. The defendant asked that the matter be dismissed for lack of jurisdiction arguing that Totes failed to exhaust its administrative remedies when it failed to file a protest with U.S. Customs and Border Protection (CBP) as necessary to invoke the the court's jurisdiction. On the defendant’s motion, the court held that constitutional challenges to statutory provisions from which CBP has no discretion to deviate are exempt from otherwise required exhaustion of administrative remedies. Here, because Totes’ complaint raised only a constitutional challenge to the HTSUS, the constitutional issues of gender/age discrimination were not amenable to administrative determination. The court reasoned that CBP does not have the authority to decide the constitutionality of the HTSUS; rather, CBP can only passively assess and collect the required tariff. Therefore, the court held that Totes could only challenge the constitutionality of the tariff before the court and not before CBP.
Totes sought reconsideration of the court’s decision that its complaint failed to state a claim. Totes argued that, since the challenged tariff provision was facially discriminatory, the government’s discriminatory intent should be presumed. Totes argued that it should not be required to establish the discrimination by demonstrating how the alleged classification was applied. The court held, however, that plaintiff’s burden to show either discriminatory intent or that the law at issue actually caused unconstitutional discrimination could be excused only if the plaintiff could demonstrate that the provision was facially discriminatory. Because the court found that Totes had failed to show an unconstitutional classification, the court refused to waive the requirement to show the classification’s discriminatory intent.
The court denied Totes’ motion holding that Totes allegation was insufficient to show gender discrimination because the complaint provided insufficient basis for the court to make an inference of unconstitutional discrimination. The court reasoned that the HTSUS was not facially discriminatory and that it merely distinguished between two similar products based upon HTSUS descriptions of “men’s” or “other” gloves. The tariff schedule did not explicitly order CBP to collect a lower rate of duty when the duty was paid by men or women. While the HTSUS subheading requires CBP to differentiate between gloves because they are targeted for use by specific genders, this is not sufficient to show facial discrimination. Thus, Totes’ claim that the subheading distinguished between products labeled for consumption by different genders was not sufficient to establish gender discrimination.
Finally, Totes asked the court to certify the question of whether the tariff provision at issue was facially discriminatory for interlocutory appeal. The court denied Totes’ motion for issue certification because Totes failed to satisfy either condition for certification because it failed to show either substantial grounds for difference of opinion or that an immediate interlocutory appeal would materially advance the ultimate termination of the litigation.
In its original complaint, importer Totes Isotoner Corporation ("Totes") alleged that the Harmonized Tariff Schedule of the United States (HTSUS) illegally discriminated on the basis of gender and/or age by setting out different tariff rates for “men’s” gloves and for “other” gloves. The court dismissed Totes’ claim on the grounds that the complaint did not allege facts sufficient to establish an inference of discrimination.
Both parties sought reconsideration of the the court's July 3, 2008 opinion. The defendant asked that the matter be dismissed for lack of jurisdiction arguing that Totes failed to exhaust its administrative remedies when it failed to file a protest with U.S. Customs and Border Protection (CBP) as necessary to invoke the the court's jurisdiction. On the defendant’s motion, the court held that constitutional challenges to statutory provisions from which CBP has no discretion to deviate are exempt from otherwise required exhaustion of administrative remedies. Here, because Totes’ complaint raised only a constitutional challenge to the HTSUS, the constitutional issues of gender/age discrimination were not amenable to administrative determination. The court reasoned that CBP does not have the authority to decide the constitutionality of the HTSUS; rather, CBP can only passively assess and collect the required tariff. Therefore, the court held that Totes could only challenge the constitutionality of the tariff before the court and not before CBP.
Totes sought reconsideration of the court’s decision that its complaint failed to state a claim. Totes argued that, since the challenged tariff provision was facially discriminatory, the government’s discriminatory intent should be presumed. Totes argued that it should not be required to establish the discrimination by demonstrating how the alleged classification was applied. The court held, however, that plaintiff’s burden to show either discriminatory intent or that the law at issue actually caused unconstitutional discrimination could be excused only if the plaintiff could demonstrate that the provision was facially discriminatory. Because the court found that Totes had failed to show an unconstitutional classification, the court refused to waive the requirement to show the classification’s discriminatory intent.
The court denied Totes’ motion holding that Totes allegation was insufficient to show gender discrimination because the complaint provided insufficient basis for the court to make an inference of unconstitutional discrimination. The court reasoned that the HTSUS was not facially discriminatory and that it merely distinguished between two similar products based upon HTSUS descriptions of “men’s” or “other” gloves. The tariff schedule did not explicitly order CBP to collect a lower rate of duty when the duty was paid by men or women. While the HTSUS subheading requires CBP to differentiate between gloves because they are targeted for use by specific genders, this is not sufficient to show facial discrimination. Thus, Totes’ claim that the subheading distinguished between products labeled for consumption by different genders was not sufficient to establish gender discrimination.
Finally, Totes asked the court to certify the question of whether the tariff provision at issue was facially discriminatory for interlocutory appeal. The court denied Totes’ motion for issue certification because Totes failed to satisfy either condition for certification because it failed to show either substantial grounds for difference of opinion or that an immediate interlocutory appeal would materially advance the ultimate termination of the litigation.
CIT Dismisses Gender Discrimination in Tariff Classifications Case
07/07/08 12:50 PM
On July 3, 2008, the U.S. Court of
International Trade (CIT) dismissed the lead gender discrimination
in tariff classifications case, Totes-Isotoner Corporation v.
United States, Slip Op. 08-73
(July 3, 2008). In the
case, the Totes-Isotoner, an importer of men's gloves, claimed that
by setting out different tariff rates for certain men's and other
gloves (i.e., 14% duty for men's gloves and 12.6% duty for gloves
"for other persons") the Harmonized Tariff Schedule of the United
States (HTSUS) violates Totes' right to equal protection under the
law because it discriminates on the basis of gender and/or age. A
three judge panel decided the case.
The government sought to dismiss the case on the basis of three claims: (1) the complaint presented a political question that was non-justiciable; (2) Totes did not have a sufficient stake in the matter so as to possess standing to bring an equal protection claim; and (3) Totes failed to state a claim upon which relief could be granted. The CIT denied the government's motion to dismiss for lack of jurisdiction on the first two claims, but dismissed the case without prejudice because it found that Totes did not plead sufficient facts to state a claim of unconstitutional jurisdiction.
Specifically, the court found that the case did not involve a non-justiciable political question as ". . . Totes' challenge to the discriminatory operation of the HTSUS properly invokes the Court's traditional role of--and standards for--constitutional review." Thereafter, the court found that Totes had sufficient standing to raise its claim by having both constitutional standing as the payor of an allegedly discriminatory tax and prudential standing as Totes' claim is within the zone of interests protected by the Constitution's Equal Protection guarantee.
Finally, the court found that Totes failed to state a claim upon which relief could be granted. Specifically, the court stated:
Slip Op. 08-73 at 14 [citations omitted]. The court found that because the tariff provisions Totes challenged were not "actual use" provisions that require the imported gloves to be actually sold or used by people of the same sex or of some age category, but were "chief" or "principal use" provisions, the complaint did not allege sufficient facts to establish the government had engaged in gender-based discrimination. The court stated:
Moreover, the discrimination alleged in Totes' Complaint, results from the imposition of the duty, or tax, imposed by tariff classifications. But, as alleged by the Compliant, that duty or tax falls on importers, and there is not factual indication in the Complaint that the classification results in discriminatory application of the tax. Therefore, Totes' additional allegation of discrimination "on the basis of sex" is simply conclusory . . . .
Slip Op. 08-73 at 17 [citations omitted].
Since the court dismissed the claim without prejudice, Totes may revise the case and re-file with the CIT or appeal the CIT decision to the Court of Appeals for the Federal Circuit. We will keep you all posted!
The government sought to dismiss the case on the basis of three claims: (1) the complaint presented a political question that was non-justiciable; (2) Totes did not have a sufficient stake in the matter so as to possess standing to bring an equal protection claim; and (3) Totes failed to state a claim upon which relief could be granted. The CIT denied the government's motion to dismiss for lack of jurisdiction on the first two claims, but dismissed the case without prejudice because it found that Totes did not plead sufficient facts to state a claim of unconstitutional jurisdiction.
Specifically, the court found that the case did not involve a non-justiciable political question as ". . . Totes' challenge to the discriminatory operation of the HTSUS properly invokes the Court's traditional role of--and standards for--constitutional review." Thereafter, the court found that Totes had sufficient standing to raise its claim by having both constitutional standing as the payor of an allegedly discriminatory tax and prudential standing as Totes' claim is within the zone of interests protected by the Constitution's Equal Protection guarantee.
Finally, the court found that Totes failed to state a claim upon which relief could be granted. Specifically, the court stated:
In order to state such a claim for violation of the equal protection clause based on gender, Totes must allege that the government has engaged in gender-based discrimination without an exceedingly persuasive justification, or in other words, that the government has used discriminatory means that are not substantially related to important government objectives. In so doing, Totes' complaint must include a factual allegation that demonstrates a governmental purpose to discriminate.
Slip Op. 08-73 at 14 [citations omitted]. The court found that because the tariff provisions Totes challenged were not "actual use" provisions that require the imported gloves to be actually sold or used by people of the same sex or of some age category, but were "chief" or "principal use" provisions, the complaint did not allege sufficient facts to establish the government had engaged in gender-based discrimination. The court stated:
Moreover, the discrimination alleged in Totes' Complaint, results from the imposition of the duty, or tax, imposed by tariff classifications. But, as alleged by the Compliant, that duty or tax falls on importers, and there is not factual indication in the Complaint that the classification results in discriminatory application of the tax. Therefore, Totes' additional allegation of discrimination "on the basis of sex" is simply conclusory . . . .
Slip Op. 08-73 at 17 [citations omitted].
Since the court dismissed the claim without prejudice, Totes may revise the case and re-file with the CIT or appeal the CIT decision to the Court of Appeals for the Federal Circuit. We will keep you all posted!
Importer Fined $7.5 Million for Declaring Incorrect Customs Values
11/12/07 02:13 PM
Based on the facts found at trial, Seaveg would negotiate the initial price for the produce with the Mexican growers by telephone and then, under an agreement with its suppliers, receive an invoice at 70% of the negotiated price, with the understanding that the remaining 30% would be paid within 60 days of delivery into storage after certain adjustments were made. At the time of entry, the invoice at 70% of the true sales price was declared value to Customs. However, neither Inn Foods, Seaveg, nor the customs broker informed Customs that the invoice values declared at the time of entry were "provisional."
Firstly, the court found that Inn Foods was responsible for all of the liabilities despite the fact that Seaveg and Inn Foods were incorporated as two separate entities because it found that Seaveg was an alter ego or alias of its sister subsidiary Inn Foods.
Secondly, the court found that Inn Foods' conduct was fraudulent as Customs had proved that Inn Foods had deliberately introduced merchandise into the commerce of the United States by means of material false statements with the intent to defraud the revenue or otherwise violate the laws of the United States. Although Inn Foods and Seaveg argued that there was no evidence adduced at trial that indicates that "Inn Foods knew or understood the legal effect of post-importation price adjustments to the price actually paid or payable to the grower/packers based on the U.S. resale prices," the court found the argument to needlessly confuse the crux of the wrongdoing. The court stated that the wrongdoing is that:
Inn Foods knew that (1) the prices on the subject entries were significantly undervalued, (2) these undervaluations caused a commensurate reduction in lawful Customs duties owed and (3) there was no plan or intention to correct these undervaluations. . . . Therefore, while Inn Foods correctly states that "there is nothing sinister, per se, about provisional pricing agreements," it is not the provisional pricing agreement here that is at issue, but the underlying undervaluation scheme which the provisional pricing agreements only play a part.
Customs sought $624,602.55 in unpaid duties and merchandise processing fees and civil penalties in the amount of $15,319,513.35 if Inn Foods' conduct was found to be fraudulent. In determining the penalty to be assessed, the court noted that for violations of fraud, the maximum penalty is the domestic value of the merchandise with no set minimum penalty and that the court possesses the discretion to determine a penalty within the parameters of the statute. After considering a number of factors as set forth in United States v. Complex Machine Works Co., 23 CIT 942, 949-50, 83 F. Supp. 2d 1307, 1315 (1999), the court ordered that Inn Foods pay $624,602.55 for unpaid duties plus pre-judgment and post-judgment interest, and civil penalties in the amount of $7,500,000.00, plus costs and fees and interest from the date of judgment.
This case represents a cautionary tale for importers who use any type of provisional invoices, including those importers who true-up customs valuations at some point after entry due to the additions to value, such as assists, royalties, buying commissions, etc. Importers have a continuing obligation to review the correctness of information contained in invoices used as entry documents, and to declare to Customs the true and correct value of the goods at the time of entry. See 19 U.S.C. §§ 1484 and 1485. Accordingly, importers should maintain proactive internal controls over their Customs valuation and understand the impact of the full financial transaction for imported goods, including any possible additions to value.
If an intercompany or transfer price is declared as the customs value of an imported good, an importer should assess whether the intercompany or transfer price satisfies the customs valuation statute independent of the acceptability of the price for tax purposes. See Customs' Informed Compliance Publication, Determining the Acceptability of Transaction Value for Related Party Transactions. In addition, importers who utilize a customs value that must be adjusted subsequent to entry should consider joining Customs' Reconciliation program. This program allows importers to declare estimated customs values and subsequently adjust those values to final values and pay or be refunded any additional duties or fees owed.
Finally, an importer may be able to limit its liabilities for valuation and other errors it discovers on its own by filing a prior disclosure with Customs. By filing a prior disclosure, an importer voluntarily discloses to Customs the factual circumstances of a violation of the customs statute and tenders any duties and fees owing. If the prior disclosure is done properly, the importer's liability for penalties can be reduced to the interest owed, unless fraud is found.
Global Trade Expertise can assist with an importer in assessing the validity of their customs valuations, joining CBP's Reconciliation program, and/or filing a valid prior disclosure with CBP. Please contact us for assistance.