Shah Bros., Inc. v. United States
| Decision Date | 18 September 2014 |
| Docket Number | Court No. 10–00205.,Slip Op. 14–109. |
| Parties | SHAH BROS., INC., Plaintiff, v. UNITED STATES, Defendant. |
| Court | U.S. Court of International Trade |
Elon A. Pollack and Kayla Owens, Stein Shostak Shostak Pollack & O'Hara, LLP, of Los Angeles, CA, for the Plaintiff.
Edward F. Kenny, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY, for the Defendant. Also on the briefs were Stuart F. Delery, Assistant Attorney General, and Amy M. Rubin, Assistant Director, International Trade Field Office.
Plaintiff Shah Bros., Inc. (“Shah Bros.”)—an importer of a smokeless tobacco product from India called “gutkha”—seeks an award of its attorney's fees, expenses, and costs in connection with this action, pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412(d) (2012) (“EAJA”).1 As explained below, because Shah Bros. was the prevailing party; because the agency determination upon which this action is based was not substantially justified; and because no special circumstances exist in this case that would make an EAJA fees and costs award unjust, Shah Bros. is entitled to an award of the fees and costs reasonably incurred in this action. Accordingly, Plaintiff's motion is granted.
At issue in this litigation was the tariff classification of Shah Bros.' gutkha, entered in May 2009 and classified by U.S. Customs and Border Protection (“Customs”) as “snuff” under Subheading 2403.99.2040 of the Harmonized Tariff Schedule of the United States (“HTSUS”).2 In protesting this classification, Shah Bros. argued that the merchandise instead should have been classified as “chewing tobacco” under HTSUS Subheading 2403.99.2030.3
Prior to this action, in April 2009, Shah Bros. had brought an earlier suit challenging Customs' classification of previously-entered gutkha as “snuff” rather than “chewing tobacco.” See Shah Bros., Inc. v. United States, 751 F.Supp.2d 1303 (C.I.T.2010) (“Shah Bros. I ”); Pl.'s Br. at 3 (). On November 27, 2009, the Government moved for entry of judgment in favor of Shah Bros. in that earlier case, agreeing to reclassify Shah Bros.' entries of gutkha at the tariff and tax rates applicable to “chewing tobacco,” rather than “snuff,” and to refund to Shah Bros. any excess duties and taxes paid, along with lawful interest.4
Meanwhile, after commencing its prior challenge (April 2009) but before the Government confessed judgment in that case (November 2009), Shah Bros. imported an additional entry of gutkha, which was also classified by Customs as snuff (May 2009). See Am. Compl. at ¶ 57. Shah Bros. filed a protest of the classification of this later entry, which Customs denied on June 22, 2010. Id. at ¶¶ 2–3. Shah Bros. then commenced this action to challenge the denial of the protest. See id. at ¶ 5; Summons, ECF No. 1, at 2. Despite confessing judgment as to the proper classification of Shah Bros.' prior entries in November 2009, the Government did not similarly confess judgment in this case until October 28, 2013, nearly four years later. See Def.'s Mot. for Entry of Confession of J. in Pl.'s Favor, ECF No. 81 (“Def.'s Mot. to Confess J.”).
Under the EAJA, a party prevailing in a civil action brought by or against the United States is entitled to an award of the attorneys' fees and other expenses incurred by that party in such action, “unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.” 28 U.S.C. § 2412(d).
The “position of the United States,” as contemplated by 28 U.S.C. § 2412(d), “means, in addition to the position taken by the United States in the civil action, the action or failure to act by the agency upon which the civil action is based.” 28 U.S.C. § 2412(d)(2)(D).5 “The Government's ‘position’ includes both the underlying agency action that gave rise to the civil litigation and the arguments made during the litigation itself.” DGR Assocs., Inc. v. United States, 690 F.3d 1335, 1340 (Fed.Cir.2012) (citations omitted).
To be “substantially justified,” the Government's position must have “a reasonable basis in law and fact” and be “justified to a degree that could satisfy a reasonable person.” Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). “[A] position can be justified even though it is not correct, and ... it can be substantially (i.e., for the most part) justified if a reasonable person could think it correct.” Id. at 566 n. 2, 108 S.Ct. 2541. Thus, “to determine whether the overall position of the United States is substantially justified, trial courts are instructed to look at the entirety of the government's conduct and [determine] whether the government's overall position had a reasonable basis in both law and fact.” Chiu v. United States, 948 F.2d 711, 715 (Fed.Cir.1991) (footnotes omitted). “[I]n assessing the justification of the government's position, courts consider the clarity of the governing law, that is, whether judicial decisions on the issue left the status of the law unsettled, and whether the legal issue was novel or difficult.” Norris v. SEC, 695 F.3d 1261, 1265 (Fed.Cir.2012) (per curiam) (internal quotation marks and citations omitted).
The Government bears the burden of proving that its position was substantially justified. Libas, Ltd. v. United States, 314 F.3d 1362, 1365 (Fed.Cir.2003). To meet this burden, the Government must “show that it was clearly reasonable in asserting its position, including its position at the agency level, in view of the law and the facts.” Gavette v. Office of Pers. Mgmt., 808 F.2d 1456, 1467 (Fed.Cir.1986) (emphasis in original, citations omitted).
As for “special circumstances [that would] make an award [of fees and costs to the prevailing party] unjust,” 28 U.S.C. § 2412(d), such “[s]pecial circumstances have been recognized where the government unsuccessfully advanced novel and credible legal theories in good faith.” Am. Air Parcel Forwarding Co. v. United States, 12 CIT 850, 853, 697 F.Supp. 505, 507 (1988). Such circumstances do not exist, however, where the Government advances legal theories that were previously rejected by the courts. See Fakhri v. United States, 31 CIT 1287, 1294, 507 F.Supp.2d 1305, 1314 (2007) () (footnote omitted).
The Government argues that Shah Bros. should not be awarded its fees and costs in this case because the Government's position was substantially justified or, in the alternative, because special circumstances make such an award unjust.6 Each argument is addressed in turn.
First, the Government argues that its position was substantially justified because gutkha is particularly difficult to classify, there was no clear law on the subject, and because Shah Bros. had described its merchandise as “ground” (a word that appears in the statutory definition of “snuff”7 ) when protesting the classification of the entries at issue in Shah Bros. I .8 But while this may have been true with regard to the entries at issue in Shah Bros. I , by the time Shah Bros. protested the classification of the entry at issue here, Customs already had the benefit of and experience from the litigation in Shah Bros. I .
In Shah Bros. I , the Government conceded that Shah Bros.' gutkha should have been properly classified as chewing tobacco, not snuff. See Shah Bros. I, ––– CIT at ––––, 751 F.Supp.2d at 1305. Despite this concession, however, Customs denied Shah Bros.' subsequent request to reclassify the entry now at issue in the same manner as Customs had agreed to classify the entries at issue in Shah Bros. I ,9 notwithstanding the fact that the entry was of apparently materially-identical merchandise to that at issue in Shah Bros. I ,10 imported by the same importer shortly after commencement of that action. Because Customs denied its protest and reclassification request, Shah Bros. incurred expense to bring this legal action, which the Government ultimately conceded in Shah Bros.' favor, agreeing that, as in Shah Bros. I , the entry of Shah Bros.' gutkha that is now in question should also have been properly classified as chewing tobacco rather than snuff. See Def.'s Mot. to Confess J.
Given these circumstances, Customs has not established justification for its decision, reached months after its concession in Shah Bros. I , to deny Shah Bros.' request to reclassify its materially-identical merchandise in the same way, and for the same reasons, as the Government had agreed to classify the merchandise at issue in Shah Bros. I . The Government makes no argument in this regard,11 and, as no justification is otherwise apparent, the circumstances of this case indicate that, although Customs may have been substantially justified in classifying Shah Bros.' merchandise as snuff prior to the litigation underlying Shah Bros. I , the Government has not met its burden to show that its subsequent denial of Shah Bros.' protest to reclassify materially identical merchandise was substantially justified.
Because Customs' unjustified decision to deny Shah Bros.' protest directly caused Shah Bros. to incur the expense of bringing this litigation, an award of fees and costs in this case furthers the remedial purpose of the EAJA, as well as its intent “to deter the unreasonable exercise of Government authority.” See Ardestani v. Immigration & Naturalization Srv., 502 U.S. 129, 138, 112 S.Ct. 515, 116 L.Ed.2d 496 (1991).
The Government also argues, in the alternative, that special circumstances exist in this case that...
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