CIT Judge Rejects Government Counterclaim in Customs Case, Citing Lack of Statutory Basis

The Court of International Trade ruled that the U.S. can't file a counterclaim in a customs case brought by Second Nature Designs, according to a July 25 order by Judge Gary Katzmann (Second Nature Designs v. U.S., CIT #21-00271).

Second Nature sought a different classification for its dried botanical items used in home decor imported in 2017. The goods were originally liquidated by CBP under subheading 0604.90.60 as "other" botanicals, dutiable at 7%. Second Nature protested the liquidation, seeking reclassification under the duty-free subheading of 0604.90.60 as "dried or bleached" botanicals. CBP denied the protest and Second Nature brought suit at CIT. Discovery was extended from 2018 until February 2022, "largely to accommodate the parties’ joint efforts to establish the scope of the litigation and prepare an agreed upon statement of facts."

Shortly before the close of discovery, on Jan. 28, the government filed a motion to amend its answer and assert a counterclaim that the merchandise is, in part, correctly classified under subheading 6702.90.65 as "other" artificial flowers, dutiable at 17%. Second Nature accused the government of delaying tactics for waiting through nearly four years of discovery to file a counterclaim (see 2203020065).

Second Nature claimed that the government's proposed counterclaim should be "barred by the finality of liquidation, impermissible on statutory and Constitutional grounds, and unreasonably prejudicial to Plaintiff’s ability to participate in the litigation." Katzmann ruled that there is no statutory basis for the U.S. to file a counterclaim, citing a similar case (Cyber Power Systems Inc. v. United States, Slip Op. 22-85, CIT #21-00200) (see 2207200052).

The judge, however, ruled that the government had "mistakenly designated a defense as a counterclaim" and granted the government's request to amend its answer to Second Nature's complaint and incorporate the arguments found in its counterclaim, citing court rule 8(d)(2).