Otter Products Takes Case to CIT Seeking Interest on Duty Overpayments Refunded by CBP

CBP must refund the interest accrued on duty overpayments, phone case importer Otter Products argued in a Sept. 12 motion for judgment at the Court of International Trade. Having had the duty overpayments themselves refunded following prior court action at CIT and the U.S. Court of Appeals for the Federal Circuit, Otter took to the court again to request the interest. The plaintiff argued that since the full payments were never made voluntarily, it is entitled to a refund of the interest accrued on the payments made in connection with prior disclosures, and that the statute unambiguously mandates the maximum penalty for prior disclosures involving negligent conduct (Otter Products v. United States, CIT #22-00033).

In August 2013, Otter challenged the classification of its smartphone covers. CBP reclassified the covers from Harmonized Tariff Schedule heading 3926 to 4292, bumping the duties from 5.3% to 20%. Otter filed three prior disclosures over the entries.The importer won its challenge at CIT, receiving the lower, 5.3% tariff rate for the imports. The Federal Circuit upheld the trade court's finding. CBP then paid out the duty overpayments on the three prior disclosures in 2020 but refused, and continues to refuse, to fork over the interest on those payments which accrued between the date of payment and the date CBP refunded the principal.

Otter took to the trade court again to seek that interest, arguing that the U.S. has refused to give any legal authority to back its actions, undermining "any notion of Government transparency or fair notice." The plaintiff said that it is entitled to the interest on its duty overpayments pursuant to 19 U.S.C. Section 1520(a)(3), which "unambiguously authorizes" the treasury decretary to refund duties or other receipts whenever money is deposited in the Treasury on a fine, penalty or forfeiture that did not accrue, or which was finally decided to have accrued in an amount less than that so deposited, or which is mitigated to an amount less than that so deposited.

Another statute, 19 U.S.C. 1505(b), (c), further clarifies that the U.S. "shall … refund any excess moneys deposited, together with interest thereon” whereby “[interest] on excess moneys deposited [with the agency] shall accrue … from the date the importer of record deposits estimated duties, fees, and interest…to the date of liquidation or reliquidation of the applicable entry or reconciliation." Otter said the record "unequivocally" shows that it made interim duty payments on assists covered by the three prior disclosures, and thus, it should be entitled to interest on the overpayments since they were made involvuntarily -- the court already found that payments under a prior disclosure can be made involuntarily and that Otter's tender of duties were not voluntarily made.

The U.S. said that there stands no statutory or regulatory provision that calls for interest payments on refunds associated with prior disclosures. Otter said this ignores "Congress’ unambiguous, nondiscretionary statutory mandate for maximum penalties applicable to prior disclosures involving negligent conduct. Defendants’ failure to refund interest accrued on overpaid prior disclosures payments would result in penalizing Otter to a greater extent than contemplated by law."

Otter further argued that CBP's actions "should not go unchecked as a matter of law and equity." The U.S. benefited monetarily from the misclassification of the phone covers, and there is "no legally justifiable reason why CBP should be allowed to unjustly profit from its own delay in processing refunds of duty overpayments made pursuant to the prior disclosures," the brief said.

"Compounded by these equitable principles, Defendants continue to waste both judicial and public taxpayer funds by engaging in needless litigation that is contrary to Congress’ plain and unambiguous statutory directives that overpayments to Customs be refunded with interest. Accordingly, this Court should find that CBP’s actions are contrary to law and equity and enter judgment in favor of Otter."