Tabacos De Wilson, Inc. v. United States

• Decision Date: 29 June 2018
• Docket Number: Slip Op. 18–81,Court No. 18–00059
• Parties: TABACOS DE WILSON, INC.; Tabacco Rag Processors, Inc.; Brown–USA, Inc.; Nippon America Group/Okura USA Inc.; Skate One Corporation; Alliance International, CHB, Inc. ; C.J. Holt & Company, Inc. ; Customs Advisory Services, Inc., Plaintiffs, v. UNITED STATES of America, U.S. Customs & Border Protection, Steven T. Mnuchin, in his official capacity as Secretary of the Treasury, and Kevin K. McAleenan, in his official capacity as Commissioner, U.S. Customs & Border Protection, Defendants.
• Court: U.S. Court of International Trade

324 F.Supp.3d 1304

TABACOS DE WILSON, INC.; Tabacco Rag Processors, Inc.; Brown–USA, Inc.; Nippon America Group/Okura USA Inc.; Skate One Corporation; Alliance International, CHB, Inc. ; C.J. Holt & Company, Inc. ; Customs Advisory Services, Inc., Plaintiffs,

v.UNITED STATES of America, U.S. Customs & Border Protection, Steven T. Mnuchin, in his official capacity as Secretary of the Treasury, and Kevin K. McAleenan, in his official capacity as Commissioner, U.S. Customs & Border Protection, Defendants.

Slip Op. 18–81

Court No. 18–00059

United States Court of International Trade.

Dated: June 29, 2018

John Peterson, Neville Peterson, LLP, of New York, NY, argued for Plaintiffs Tabacos de Wilson, Inc., Tobacco Rag Processors, Inc., Brown–USA, Inc., Nippon America Group/Okura USA Inc., Skate One Corporation, Alliance International, CHB, Inc., C.J. Holt & Company, Inc., and Customs Advisory Services, Inc. With him on the brief were Richard O'Neill and Russell Semmel, Neville Peterson, LLP, of New York, NY.

Justin Miller, International Trade Field Office, U.S. Department of Justice, of New York, NY, argued for Defendants United States; United States Customs and Border Protection; Steven T. Mnuchin, Secretary of Treasury; and Kevin K. McAleenan, Acting Commissioner of U.S. Customs & Border Protection. Also on the brief were Alexandra Khrebtukova, Office of Chief Counsel, International Trade Litigation, U.S. Customs and Border Protection, of New York, NY, and Jamie Shookman, International Trade Field Office, U.S. Department of Justice, of New York, NY.

OPINION

Restani, Judge

In this action challenging a guidance document issued by the United States Customs and Border Protection ("CBP") to regulate drawback claims in the interim period while new regulations implementing the Trade Facilitation and Trade Enforcement Act of 2015 ("TFTEA") are being reviewed, importers: Tabacos de Wilson, Inc., Tobacco Rag Processors, Inc., Brown–USA Inc., Nippon America, Inc., and Skate One Corporation; and brokers: Alliance Customhouse Brokers, Inc., C.J. Holt & Company, Inc., and Customs Advisory Services, Inc. (collectively, "Plaintiffs") request the court hold that the interim guidance document unlawfully amended the existing drawback statute, 19 U.S.C § 1313, and its regulations. In response, the United States; CBP; Steven T. Mnuchin, Secretary of Treasury; and Kevin K. McAleenan, Acting Commissioner of U.S. Customs & Border Protection (collectively, "Defendants") seek a motion to dismiss.

BACKGROUND

I. Drawback Statute

Drawbacks are refunds of a customs duty, fee, or internal revenue tax paid on imported merchandise. 19 C.F.R. § 191.2(i) (2010). Section 313 of the Tariff Act of 1930, as amended, provides the statutory framework for claiming a drawback. 19 U.S.C. § 1313 (2016).¹ Drawbacks are available where, inter alia, imported goods are directly used in producing a good for export, id. § 1313(a) ("direct identification drawbacks"), imported and substitute goods of the "same kind and quality" are used to produce goods for both domestic use and export, id. § 1313(b) ; 19 C.F.R. § 191.2(x)(1) ("substitution manufacturing drawbacks"), imported goods do not conform to specifications and are exported, 19 U.S.C. § 1313(c) ("rejected merchandise drawbacks"), imported goods are exported without having been used in the United States, id. § 1313(j)(1)(A)(i) ("unused merchandise drawbacks"), and "substituted" goods are exported without having been used in the United States, id. § 1313(j)(2) ("substitution unused merchandise drawbacks"). Prior to the implementation of CBP's interim guidance document, all drawback claims were filed under the pre-TFTEA version of 19 U.S.C. § 1313, and all claims were processed according to the regulations codified in Part 191 of Title 19 of the Code of Federal Regulations. As part of this, 19 C.F.R. § 191.92 permits CBP to offer qualifying claimants accelerated payment of estimated drawback claims. To receive accelerated payment of drawback claims, the claimant must be approved by the agency and must satisfy additional statutory and regulatory requirements, such as "correctly calculat[ing] the amount of drawback due." See 19 C.F.R. §§ 191.51(b)(1), 191.92(a)(1), 191.92(b)(3).

II. The Trade Facilitation and Trade Enforcement Act of 2015

On February 24, 2016, Congress enacted the TFTEA. The Trade Facilitation and Trade Enforcement Act of 2015, Pub. L. No. 114–125, 130 Stat. 122 (2016). Section 906 of the TFTEA amended the drawback statute. The key amendments included: (1) changing the test used for substitution manufacturing drawbacks under 19 U.S.C. § 1313(b), TFTEA § 906(b); (2) changing the commercial interchangeability test for substitution unused merchandise drawbacks, id. § 906(e); and (3) expanding the period for filing drawback claims under 19 U.S.C. § 1313(j)(2), id. § 906(j). These changes were intended to make drawback applications less burdensome on both claimants and CBP. See Defendants' Memorandum in Support of its Motion to Dismiss and Opposition to Plaintiffs' Motion for Preliminary Injunction: Defendant's Exhibit 1, ECF No. 23–2, ¶ 5 (Apr. 13, 2018) ("Whittenburg Decl.").

Under the pre-TFTEA framework, claimants typically calculated drawback claims based on the invoice values of the imported merchandise. Whittenburg Decl. ¶ 6. Because invoices are not standardized, this lengthened the review process. See id. The TFTEA permitted the U.S. Secretary of the Treasury ("Treasury") to adopt new regulations standardizing the drawback process by migrating from the invoice system to an automated system based on "average per unit duties, taxes, and fees." TFTEA § 906(g)(l)(2)(B)–(C). In addition to improved processing efficiency, Plaintiffs anticipate that drawback claimants "stand[ ] to benefit from the new substitution rules and expanded time limits contained in the TFTEA ...." Motion for Preliminary Injunction: Plaintiffs' Exhibits A–E, ECF No. 13–1, at A ¶ 5, B ¶ 5, C ¶ 5, D ¶ 5, E ¶ 5. (Mar. 23, 2018) ("Pls. Exs."); see also id. at F ¶ 5, G ¶ 5, H ¶ 5 (discussing anticipated benefits under the TFTEA).

Congress provided the Treasury two years from the enactment of the TFTEA to promulgate regulations implementing the TFTEA's drawback amendments. TFTEA § 906(g)(l)(2)(A). Treasury was unable to meet the two-year deadline, which lapsed on February 24, 2018. To date, Treasury has yet to publish final regulations implementing the TFTEA's drawback amendments. As of April 6, 2018, however, Treasury has created a draft regulatory package in the form of a Notice of Proposed Rulemaking ("NPRM") and has transmitted that regulatory package to the Office of Management and Budget ("OMB") for interagency review. See Defendants' Memorandum in Support of its Motion to Dismiss and Opposition to Plaintiffs' Motion for Preliminary Injunction, ECF No. 23–1, at 3. (Apr. 13, 2018) ("Defs. Br."). The period for interagency review is 90 days, Exec. Order No. 12,866, 58 Fed. Reg. 51,735, at § 6(b)(2)(B) (Sept. 30, 1993) (" Exec. Order No. 12,866"), after which public notice-and-comment will commence, see Oral Argument, ECF No. 29, at 19:00–19:07 (May 7, 2018) ("Oral Arg."); Defs. Br. at 10.

Following the two-year rulemaking period, TFTEA provides for a transition year, beginning February 24, 2018, and ending February 23, 2019. TFTEA § 906(q)(1)(B). During this time claimants may elect to file drawback claims under 19 U.S.C. § 1313, as it was pre-TFTEA, or under that statutory provision, as amended by the TFTEA. TFTEA § 906(q)(3).

III. Interim Guidance Document

On February 5, 2018, CBP published the first version of a Guidance Document created to inform the trading community of interim procedures for filing TFTEA drawback claims during the transition year. U.S. CUSTOMS AND BORDER PROTECTION, DRAWBACK: INTERIM GUIDANCE FOR FILING TFTEA DRAWBACK CLAIMS, VERSION 1 (2018) ("Guidance Document: Ver. 1"). The third version of the Guidance Document was published on March 26, 2018. See generally U.S. CUSTOMS AND BORDER PROTECTION, DRAWBACK: INTERIM GUIDANCE FOR FILING TFTEA DRAWBACK CLAIMS, VERSION 3 (2018) ("Guidance Document").² The Guidance Document indicates CBP will neither process nor liquidate transition year drawback claims until new regulations are developed by Treasury, published in a NPRM, subjected to notice and comment, and issued as final rules. Guidance Document at 15. The Guidance Document mentions new filing restrictions that were not in the TFTEA, such as the "first-filed" and "mixed use" rules. Guidance Document at 2, 6, 15–16; see also Plaintiffs' Memorandum in Support of its Motion for Preliminary Injunction, ECF No. 14, at 29 (Mar. 23, 2018) ("Pls. Br."). The "first-filed" rule limits drawback claimants to designating goods from an import entry line item to either direct identification or substitution drawback claims. Guidance Document at 6. Similarly, the ‘mixed use’ rule provides that claimants can only make substitution-based drawback claims under the TFTEA if the entry summary line on which that claim is based was not previously the subject of a drawback claim filed under the pre-TFTEA statute. Guidance Document at 2, 15–16.

On March 23, 2018, Plaintiffs commenced this case and moved for a preliminary injunction. Motion for Preliminary Injunction, ECF No. 13, at 1 (Mar. 23, 2018). On April 13, 2018, Defendants responded to Plaintiffs' motion and filed a cross-motion to dismiss the action. See Defs. Br. at 1. Oral argument on Plaintiffs' motion was held on May 7, 2018, during which Plaintiffs' motion was denied without prejudice. Oral Arg. at 1:02:27–1:02:50. Thereafter, the court permitted parties to file supplemental briefs concerning the merits of Count V of Plaintiffs' Complaint. Plaintiffs' Supplemental Briefing Addressed to Count V of the Complaint, ECF No. 32 (May 21, 2018) ("Pls. Supp. Br."); Defendants' Supplemental Brief, ECF No. 33 (June 4, 2018) ("Defs. Supp. Br."). This opinion addresses both Plaintiffs' motion for...