Trade Court Tosses Case Seeking Interest on Duty Overpayments Linked to Prior Disclosures

The Court of International Trade on March 29 dismissed a lawsuit from cell phone case maker Otter Products seeking interest on customs duty overpayments, finding it lacked jurisdiction to hear the case. Judge Claire Kelly held that the Administrative Procedure Act waiver of sovereign immunity only applies to interest on deposits linked with liquidated entries. As a result, there is no specific waiver of immunity related to Otter's claim for interest for its overpayments on tendered prior disclosures "under the no-interest rule," Kelly said.

Otter had discovered in 2010 that it failed to declare the value of certain assists related to its imported Commuter and Defencer Series cell phone cases and inconsistently classified those products. The company classified the cases under both Harmonized Tariff Schedule subheading 3926.90.9980, dutiable at 5.3%, and 4202.32.9560, dutiable at 17.6%, instead of under 4202.99.9000, dutiable at 20%. The importer filed prior disclosures to "limit its potential penalty exposure."

Meanwhile, Otter filed suit at CIT concerning the proper classification of the phone cases. The company won its suit, with the court ruling the merchandise should be classified under HTS subheading 3926.90.9980. During this challenge, CBP stayed consideration of three of Otter's prior disclosures. After the U.S. Court of Appeals for the Federal Circuit affirmed the classification of the phone cases, CBP closed out the three disclosures for processing.

The imports were reclassified under the proper subheading and Otter was given a refund, though CBP did not pay Otter interest on the overpayments. The importer again filed suit at CIT, this time seeking the interest on the duty overpayments linked to the three prior disclosures on cell phone cases entered between 2006 and 2014.

Kelly dismissed the case for lack of jurisdiction since there is no stated waiver of sovereign immunity under the APA for interest paid on overpayments related to prior disclosures. The waiver that is in the APA is triggered by liquidation or reliquidation. The judge held that this waiver does not apply to the current case since the payments were not related to liquidation or reliquidation. When CBP refunds any duty reductions when processing a prior disclosure, it is not liquidating the entries.

While the law "requires an importer to submit interest for loss of duties," the company "does not receive interest on its overpayments in connection with prior disclosures because the statute does not provide for interest on duty overpayments," the judge said. "Rather, the waiver of sovereign immunity for suits seeking interest on overpayments exists only in connection with liquidation or reliquidation."

Otter argued that it was entitled to the interest since it made the payments involuntarily, "pursuant to CBP’s erroneous classification of Otter’s merchandise," basing its claim on the court's prior opinion over the classification of the phone cases. Kelly replied that "the voluntariness of payments is inapposite here," since the prior case "did not depend upon the voluntariness of Otter’s payment, but rather upon whether its entries had liquidated." Otter also claimed that the misclassification of its entries gave the U.S. an "unjust monetary benefit." Kelly again sided with the government, ruling that the "classification and valuation of merchandise is a shared responsibility of CBP and the importer."

(Otter Products v. United States, Slip Op. 23-43, CIT # 22-00033, dated 03/29/23, Judge Claire Kelly. Attorneys: Louis Mastriani of Polsinelli PC for plaintiff Otter; Beverly Farrell for defendant U.S. government)