DOJ Seeks Rehearing Over Reimported Swimsuits Customs Spat, Says Argument Not Addressed

The Court of International Trade should rehear its decision on whether a Warehousing Agreement between two related companies sufficed as a lease or similar use agreement since it failed to address one of the U.S.'s arguments that the two entities are not separate but merely a single entity, DOJ argued in an April 20 motion for rehearing (SGS Sports v. United States, CIT #18-00128).

The case concerns imported swimwear from SGS Sports. The importer is seeking duty-free treatment under Harmonized Tariff Schedule subheading 9801.00.20 after first exporting them to Canada for warehousing at related company Canada 147483's warehouse. CBP rejected that classification, issuing a ruling in 2018 that said SGS and the warehouse operator were actually the same entity under the same ownership, and could not have executed any “agreement” as required for classification in 9801.00.20 (see 1802220037).

The HTS subheading comes with four conditions: the reimported merchandise must have had duties paid on it when it was first imported, have not been advanced in value while abroad, have been exported under a lease or similar use agreement and reimported by or for the person who imported the goods into, and exported them from, the U.S. In the case, Judge Jennifer Choe-Groves set a bench trial to see whether this third condition was met, and she eventually came back and found that it was (see 2203210065).

"The Court did not address the Government’s second argument that SGS and 147483 are not separate entities," DOJ's brief said. "This argument is significant because, if decided in favor of the United States, it would be dispositive of the case."

The U.S. first addressed the legal basis for its rehearing motion. Seeing as courts have held that a failure to weight a dispositive argument satisfies the standard for rehearing, the bid should be accepted, the government argued. Then, DOJ laid out the "significant guidance under state-law veil piercing standards and the federal common law" to determine whether two entities should be seen as the same entity.

"We provide the standard applied for determining whether one entity is an 'alter ego' of another entity, otherwise known as 'piercing the corporate veil,'" the brief said. The U.S. said that these analyses are used to find whether a court should disregard the corporate structure and hold whether an individual or another corporation is liable for the debts of another. While it is not seeking to use these analyses here, the factors are merely instructive, the brief said.

"In this case, under any of the standards or criteria discussed above, the record evidence shows that SGS and 147483 are, in fact, the same company. Plaintiff altered the structure of its import transactions in 2005 in an attempt to satisfy the requirements of subheading 9801.00.20, HTSUS, and avoid paying U.S. Customs duty on the purported subsequent importation, when goods are sold to U.S. customers."