GOVERNMENT COUNTERCLAIMS IN PROTEST CASES? NOT SO FAST, CIT SAYS

Ever since enactment of the Customs Courts Act of 1980, which gave the United States Court of International Trade jurisdiction over counterclaims, litigants and the government have assumed that Customs could assert a claim for the payment of more duties than were assessed upon liquidation of Customs entries. But two recent decisions of the CIT teach otherwise.

  In Cyber Power Systems (USA) Inc. v. United States, Slip Op. 22-85 (July 20, 2022), an importer was assessed a 25% ad valorem Section 301 tariff on certain Chinese-origin telecommunication cables. The importer protested the assessment, claiming that the cables were subject to a product-specific Section 301 exclusion. The government filed an Answer with a Counterclaim, asserting that the goods were not “telecommunications” cables, and were subject to a 2.6% duty rate, in addition to the 25% Section 301 assessment.

The importer moved to dismiss the counterclaim, arguing that the government had no cause of action to assert it. Once the entries in question had been liquidated, and the 90-day reliquidation period had lapsed, Customs was bound by the finality of liquidation. While the statute allowed for departures from finality, those were downward departures in favor of the importer – either through allowance of a protest, or enforcement of a CIT judgment in the importer’s favor. The Court agreed. The Court also agreed that its grant of counterclaim jurisdiction did not create a cause of action in favor of the government to assert counterclaims, where there was no statutory basis for such counterclaims. The court redesignated the asserted counterclaims as defenses.

Second Nature Designs Ltd. v. United States, Slip Op. 22-86 (July 25, 2022), arose in a slightly different procedural posture. The government had long ago filed its Answer, but now moved to submit an amended Answer with a counterclaim. Adopting the Court’s reasoning In Cyber Power, supra, the Court denied the government’s motion to amend with a counterclaim, but allowed it to file an amended Answer designating its claims as defenses.

The upshot of both decisions is that, even if the Court finds that the government’s asserted claims are correct, it may enter a declaratory judgment to that effect, but will not award a money judgment in favor of the government.  The decisions eliminate a potential risk factor for importers who choose to challenge CBP’s determinations in court.

For more information concerning these decisions, please feel free to contact a Neville Peterson professional.