CIT Says US Doesn't Have Authority to Issue Counterclaim Seeking Reclassification of Imports

The Court of International Trade in a July 20 opinion redenominated the U.S.'s counterclaim in a customs case brought by importer Cyber Power Systems as a defense, ruling that the U.S. does not have the statutory authority to make the counterclaim. With the ruling, Judge Claire Kelly denied Cyber Power's motion to dismiss the counterclaim as moot. Kelly ruled that none of the sections in the U.S. code cited by the U.S. give a basis for the counterclaim, which sought to reclassify imported cables.

"I think it's a significant decision because, ever since the Customs Courts Act of 1980 came into effect, and gave the court jurisdiction over 'counterclaims,' the government has always assumed that, in a Customs protest case, it could make a counterclaim for more duties than were collected at liquidation," John Peterson, counsel for Cyber Power, told Trade Law Daily. "Today's decision made clear that, although the CIT can hear counterclaims in certain types of cases, Congress never gave Customs a cause of action to seek duties over and above those assessed at liquidation of a Customs entry. It should give importers more confidence in turning to the CIT in protest cases, knowing that they can't be held liable for more than they've already paid."

Cyber Power filed its case to challenge CBP's denial of its protest seeking to reclassify 10 entries of seven different types of cables, classified by CBP under Harmonized Tariff Schedule subheading 8544.42.20. This subheading was subject to Section 301 China tariffs under secondary subheading 9903.88.03. Cyber Power claims that the cables fall under an exclusion to the Section 301 duties and should be listed under secondary subheading 9903.88.33.

In denying Cyber Power's protest, CBP said that the cables fail to meet the definition of telecommunications cables for subheading 8544.42.20 and should be classified under subheading 8544.42.9090, dutiable at 2.6% in addition to the Section 301 duties, though the entries were not reclassified for the cables under this subheading at that time. During litigation, the U.S. filed a counterclaim seeking the reclassification of the cables under subheading 8544.42.90. The plaintiff said the counterclaim should be dismissed because it fails to allege a cause of action, the liquidation of the merchandise is final and allowing the U.S. to prosecute the counterclaim violates its rights under the Constitution's equal protection clause.

Kelly ruled that the U.S. does not have the statutory authority to assert its counterclaim, finding that this issue has never been directly addressed by prior courts. The U.S. claimed that "19 U.S.C. §§ 1202, 1503, and 1514(a) give it authority to assert the Counterclaim," though the judge said that none of these sections can be read to give the U.S. this jurisdiction. The judge said that Congress laid out a "comprehensive scheme governing import duties," detailing various remedies on customs practices. This scheme is composed, in part, of 19 USC 1500, 1501, 1504, 1505, 1509, 1515, and 1581–1631 and 28 USC § 1592.

"Nowhere in that comprehensive scheme did Congress explicitly authorize the United States to assert a counterclaim challenging CBP’s classification," the opinion said. "Furthermore, a counterclaim contesting CBP’s classification of merchandise upon liquidation requires the United States to make a claim against itself. CBP, a federal agency, classified and liquidated the entry that the defendant, United States, now seeks to have reliquidated. In light of the multitude of specific remedies available to CBP to classify merchandise and to fix and collect duties, the court declines to read into the applicable statutes an implied cause of action to assert a counterclaim challenging CBP’s classification," it said.

The U.S. primarily uses 10 USC 1202 to make its claim, which the U.S. says gives CBP the power to enforce the tariff on its terms. "Nothing in the plain, unambiguous terms of Section 1202 permits the United States to challenge CBP’s classification via a counterclaim. Therefore, Section 1202 does not provide Defendant with a cause of action," the judge replied.

Section 1503 also is no home for the counterclaim. The provision says that "if reliquidation is required pursuant to a final judgment or order of the U.S. Court of International Trade which includes a reappraisement of imported merchandise, the basis for such assessment shall be the final appraised value determined by such court." The judge held that this section relates to the value of the merchandise and not its classification, but that in any event, the section only says that the court can order reliquidation based on a reappraisement of the value of the imports.

Under Section 1514(a), importers have the right to protest CBP's determinations, and pursuant to Section 1515, CBP must review the protest. "There is nothing in the language of Section 1514 or 1515 that gives rise to an implied right of the United States to assert a counterclaim. Defendant’s attempt to impute an additional right from these sections -- the right to bring a cause of action against itself -- simply because liquidation is not final, fails," the opinion said.

Rather than toss the counterclaim completely, though, Kelly treated the claim as a defense, denying the motion to dismiss as moot and keeping CBP's bid to reliquidate the entries under a different subheading alive.

(Cyber Power Systems (USA) Inc. v. United States, Slip Op. 22-85, CIT #21-00200, dated 07/20/22, Judge Claire Kelly. Attorneys: John Peterson of Neville Peterson for plaintiff Cyber Power; Beverly Farrell for defendant U.S. government)