Second Nature Designs, Ltd. v. United States
| Decision Date | 25 July 2022 |
| Docket Number | 17-00271,Slip Op. 22-86 |
| Parties | SECOND NATURE DESIGNS, LTD., Plaintiff, v. UNITED STATES, Defendant. |
| Court | U.S. Court of International Trade |
[The court grants in part and denies in part the United States' motion to file an amended answer and supplemental pleading asserting counterclaim.]
John M. Peterson, Neville Peterson LLP, of New York, N.Y., for Plaintiff Second Nature Designs, LTD. With him on the brief was Patrick B. Klein.
Brandon A. Kennedy, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, N.Y., for Defendant United States. With him on the brief were Brian M. Boynton, Principal Deputy Assistant Attorney General, Patricia M. McCarthy, Director, Justin R Miller, Attorney-In-Charge, International Trade Office. Of counsel on the brief was Alexandra Khrebtukova, Senior Attorney, Office of the Assistant Chief Counsel International Trade Litigation, U.S. Customs and Border Protection, of New York, N.Y.
Before: Gary S. Katzmann, Judge
Before the court is Defendant the United States' ("the Government") motion for leave to file an amended answer and supplemental pleading asserting a counterclaim against Plaintiff Second Nature Designs, Ltd. The Government argues that its motion is permissible, timely, and that the equities favor permitting it to amend and to assert a counterclaim. Plaintiff responds that the Government's motion must be denied because its proposed counterclaim and amendments are barred by the finality of liquidation, impermissible on statutory and Constitutional grounds, and unreasonably prejudicial to Plaintiff's ability to participate in the litigation. Except with respect to the proposed counterclaim, which the court redenominates as a defense pursuant to USCIT Rule 8(d)(2), the court is not persuaded by Plaintiff's arguments and grants the Government's motion for leave.
This action involves the proper tariff classification of "thousands of decorative items" reflecting "at least 852 distinct product styles" imported by Plaintiff. Joint Rule 56.3 Stmt. of Material Facts as to which there are No Genuine Issues to be Tried, Jan. 28, 2022, ECF No. 91-1 ("56.3 Statement"). In general, the at-issue goods consist of a wide variety of items of botanical home decor. Mot. to File an Am. Ans. and a Suppl. Pleading Asserting a Counterclaim at 2, Jan. 28, 2022, ECF No. 92 ("Def.'s Br."); Pl.'s Resp. in Opp. to Def.'s Mot. to Am. at 2, Feb. 18, 2022, ECF No. 95 ("Pl.'s Resp."). The goods were originally liquidated by U.S. Customs and Border Protection ("CBP") under subheading 0604.90.60[1] of the Harmonized Tariff Schedule of the United States ("HTSUS"); a classification Plaintiff timely protested. Compl. at 4-5, Dec. 21, 2017, ECF. No. 7. Following the denial of its protests, Plaintiff timely filed suit on November 17, 2017, contesting CBP's classification and alleging that the goods are instead properly classified under HTSUS provision 0604.90.3000.[2] Summons, Nov. 17, 2017, ECF No. 1; Compl. at 4. The Government answered Plaintiff's complaint on April 12, 2018, defending CBP's classification. Ans., ECF No. 12.
Discovery commenced thereafter, and was slated to conclude on November 2, 2018. Scheduling Order, May 25, 2018, ECF No. 17. However, following numerous motions for - extension by the parties, discovery was ultimately extended until February 14, 2022 -- largely to accommodate the parties' joint efforts to establish the scope of the litigation and prepare an agreed-upon statement of facts. See Order, Oct. 27, 2021, ECF No. 80; see, e.g., Joint Status Report at 13, Dec. 1, 2021, ECF No. 84 ("JSR 84") (discussing efforts to produce a joint statement of facts pursuant to Rule 56.3 of the Court of International Trade). Shortly before the close of discovery, on January 28, 2022, the Government filed a motion to amend its answer and assert a counterclaim that the at-issue subject merchandise is, in part, correctly classified under HTSUS 6702.90.65.[3], [4] Def.'s Br. at 8-9. Plaintiff responded in opposition on February 18, 2022, Pl.'s Resp., and the Government replied on March 22, 2022, Def.'s Reply in Supp. of its Mot. to File an Am. Ans. and a Suppl. Pleading Asserting a Counterclaim, ECF No. 99 ("Def.'s Reply").
The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1581(a), which provides that the court "shall have exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930." The court also has jurisdiction over the assertion of counterclaims, as provided in 28 U.S.C. § 1583.
As a threshold matter, the court adopts the conclusions of Cyber Power Sys. (USA) Inc. v. United States, 46 CIT__,__, Slip Op. 22-85 (Jul. 20, 2022) and finds that there is no statutory basis for the Government's proposed counterclaim. Although 28 U.S.C. § 1583 grants the court exclusive jurisdiction over "any counterclaim, cross-claim, or third-party action of any party" involving the same "imported merchandise that is the subject matter" of an ongoing civil action before the court, its jurisdictional grant is not a cause of action.[5] Accordingly, the Government's motion to file a supplemental pleading asserting a counterclaim is denied.
However, as established by Jarvis Clark Co. v. United States, 773 F.2d 873 (Fed. Cir. 1984), the court is permitted to "reach the correct decision" with respect to classification of merchandise on its own initiative, regardless of the classifications asserted by the parties. 733 F.2d at 878. Likewise, USCIT Rule 8(d)(2) provides that "[i]f a party mistakenly designates a defense as a counterclaim, or a counterclaim as a defense, the court must, if justice requires, treat the pleading as though it were correctly designated, and may impose terms for doing so." Here, in exercise of its authority both to consider the totality of potential classifications and to redenominate a counterclaim as a defense, the court permits the assertion of the Government's alternative classification as a defense within its amended answer.
Although USCIT Rule 15 provides that "the court should freely give leave [to amend] when justice so requires, permitting amendment is ultimately within the discretion of the court. Leave to amend may be denied on the basis of "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment." Intrepid v. Pollock, 907 F.2d 1125, 1128 (Fed. Cir. 1990) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). The Government contends that the court should exercise its discretion to permit amendment here in reflection of the timeliness of its motion and the support of the equitable factors traditionally considered by the court. Def.'s Br. at 14 (citation omitted). Plaintiff argues that the Government's motion is impermissible, and that to the extent it is not impermissible the equitable factors nevertheless require that it be denied. Pl.'s Resp. at 4-9, 20, 25. For the following reasons, the Government prevails.
Plaintiff alleges that the Government's attempt to recover additional duties is futile because the Government "has failed to identify a cause of action against Plaintiff, and because the allowance of [a] counterclaim would violate the equal protection clause of the Constitution." Pl.'s Resp. at 9. Specifically, Plaintiff argues that the assertion of alternative classifications would deprive "those who exercise their fundamental constitutional right to seek judicial review of a Government exaction in this Court" of "the protection of the finality of liquidation set out in 19 U.S.C. § 1514" and would subject them to the risk of "further loss of property" as a result of the exercise of that right. Id. at 26.
As the court has declined to find a cause of action permitting the Government to assert counterclaims for re-classification, Plaintiff's arguments regarding the permissibility of such counterclaims are moot. To the extent that Plaintiff intends those arguments to extend to the assertion of defenses alleging alternative classifications, they are unavailing.
First, although the Government has no cause of action for the assertion of a counterclaim for increased duties, it is not barred from otherwise arguing for a different classification at a higher duty rate. See, e.g., Tomoegawa USA, Inc. v. United States, 12 CIT 112, 113, 122 (1988), aff'd in part, vacated in part, per curiam 861 F.2d 1275 (Fed. Cir. 1988) (mem.), remanded to 15 CIT 162 (1991) (); Schlumberger Tech. Corp. v. United States, 39 CIT__,__, 91 F.Supp.3d 1304, 1323 (2015) aff'd 845 F.3d 1158 (Fed. Cir. 2017) (); Dollar Trading Corp. v. United States, 67 Cust. Ct. 308, 315-16 (1971) (). Accordingly, its assertion of alternative classifications is permissible here.
Second Plaintiffs seeking judicial review of CBP's assessment of duties are indeed barred from enjoying the "protection" of final liquidation -- explicitly, by the text of 19 U.S.C. § 1514(a). The law provides that...
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