M.G. Maher & Co. Ex Rel. Van Zyverden, Inc. v. United States , 26 Ct. Int'l Trade 1040 ( 2002 )

SLIP OP. 02-102
UNITED STATES COURT OF INTERNATIONAL TRADE
___________________________________________
:
M.G. MAHER & CO., INC., itself and on behalf :
of its clients, and VAN ZYVERDEN, INC., on :
behalf of themselves and all other similarly situated :
persons and/or entities who are named in the United :
States Customs Service’s Harbor Maintenance Tax : Court No. 01-01134
on ocean exports and who have not filed claims for :
refund thereof as of December 31, 200l, :
:
Plaintiffs, :
:
v. :
:
UNITED STATES, PAUL H. O’NEILL, :
Secretary of the Treasury, and :
ROBERT C. BONNER, Commissioner of Customs :
___________________________________________:
[Class Action Challenging HMT Refund Claim Regulatory Time Limit Dismissed.]
Dated: August 30, 2002
Thomas J. Kovarcik and Steven R. Sosnov, of counsel, for plaintiffs.
Robert D. McCallum, Jr., Assistant Attorney General, David M. Cohen, Director, Todd
M. Hughes, Assistant Director, Commercial Litigation Branch, Civil Division, United States
Department of Justice (Michael M. Duclos), Richard McManus, Office of General Counsel,
United States Customs Service, of counsel, for defendants.
OPINION
RESTANI, Judge:
This matter is before the court on plaintiffs’ motion for class certification and defendants’
motion to dismiss. Plaintiffs allege that 19 C.F.R. § 24.24(e) (finally promulgated on July 2,
Court No. 01-01134 Page 2
2001) which established a deadline of December 31, 2001 for filing Harbor Maintenance Tax
(“HMT”) refund claims is invalid. The court determines that this action shall be dismissed.
BACKGROUND AND JURISDICTION
In United States v. U.S. Shoe Corp., 523 U.S. 360 (1998), the Supreme Court found that
the HMT, 26 U.S.C. § 4461 et seq., which applied to nearly all merchandise shipped through the
ports of the United States, was unconstitutional as applied to exports by reason of the Export
Clause, U.S. Const., Art. I, § 9, cl. 5. U.S. Shoe, 523 U.S. at 370.
Parties who filed suit pursuant to the court’s residual jurisdiction, 28 U.S.C. § 1581(i),
received refunds from the government pursuant to a court approved claims resolution procedure,
which has returned hundreds of millions of dollars to the taxpayers of payments made within the
two year statute of limitations found at 26 U.S.C. § 2636(i) (2000). Other parties chose to follow
an administrative refund route, a remedy which was not clearly available until recognized in
Swisher Int’l., Inc. v. United States, 205 F. 3d 1358, 1369 (Fed. Cir.), cert. denied, 531 U.S. 1036(2000), as a viable avenue of relief, agency denial of which would result in the availability of
jurisdiction in this court under 28 U.S.C. § 1581(a) (2000) (Customs protest denial jurisdiction).
Further refunds have been made pursuant to a second court approved claims resolution procedure
for § 1581(a) jurisdiction cases.
Ordinarily, § 1581(i) jurisdiction is not available if another provision of § 1581 sets forth
an available basis of jurisdiction. See Miller v. United States, 824 F. 2d 961, 964 (Fed. Cir.
1987). The court in Swisher did not explain why § 1581(i) could be utilized in U.S. Shoe, even
though in Swisher the court found that § 1581(a) was available to parties who filed or could file
Court No. 01-01134 Page 3
refund requests. 205 F.3d at 1364. The answer may be that the defendants’ insistence that
§ 1581(a) jurisdiction was not available for denial of protest of rejection of HMT refund requests,
as a practical matter, precluded the ready availability of § 1581(a) jurisdiction for early refund
seekers, such as U.S. Shoe.
Times have changed, however. Both the courts and the United States Customs Service
(“Customs”) have made it very clear that refunds are to be made for timely HMT export refund
requests and that rejection of such refund requests will lead to §1581(a) jurisdiction. Unless
Miller is no longer good law or an exception exists for these cases, HMT refund seekers must
pursue claims through Customs.
Following Swisher, in Thomson Consumer Electronics, Inc. v. United States, 247 F.3d
1210 (Fed. Cir. 2001), the Court of Appeals allowed HMT importer claims to be brought under
28 U.S.C. § 1581(i), even though § 1581(a) jurisdiction was clearly available. It reasoned that
making a purely constitutional claim before Customs as to the validity of a statute would be
futile. Excusing exhaustion of statutorily mandated administrative procedures is a strong use of
the futility doctrine. See 19 U.S.C. § 1514. It would seem unlikely that the statutory procedures
may be avoided except in very similar circumstances.
Although Customs says it will readily deny late requests and plaintiffs claim the
administrative process is thus an exercise in futility, the court sees many reasons for requiring
agency processing of claims here. First, it will be the agency that will verify amounts owed and
make refunds, even if it does so pursuant to court order. Second, the agency is entitled to know
what claims exist against it and to contemplate disposition of such claims in the first instance. It
may be that particular claims may be paid or settled, even if at first glance they appear untimely
Court No. 01-01134 Page 4
under the regulation. Finally, both constitutional and statutory claims are made here, unlike
Thomson, and the relief sought, rescinding of the regulation, may be carried out by Customs.
This is not the total legal and practical futility observed in Thomson.
The court recognizes, however, that jurisdiction in this area is unsettled, most notably
because of the tension among Miller, Swisher and Thomson. Accordingly, it assumes for the
sake of argument that there is 28 U.S.C. § 1581(i) jurisdiction for this action. It also assumes
that plaintiffs have filed within the two year statute of limitations of 28 U.S.C. § 2636(i)
because the relief they seek is an invalidation of a July 2001 regulation. Finally, plaintiffs
attempted to add parties with facial standing in June 2002.1 Thus, even though the court would
dismiss this action for failure to complete a statutorily required administrative process, in the
interest of judicial economy, the court turns to defendants’ second ground for dismissal, failure to
state a claim.
As a preliminary matter, even though a court normally considers class certification before
the merits, it seems particularly important to consider whether there is any point to continuing
this matter at all because jurisdiction is uncertain and the discretionary considerations as to
whether to certify a class are very difficult.2 See Clincher v. United States, 205 Ct. Cl. 8, 11, 499
F. 2d 1250, 1252 (1974) (class members should not be invited to “board a sinking ship”.)
1
The original plaintiffs may have opted out or filed timely refund requests. Thus,
standing on their behalf may be lacking. The new parties’ requests appear barred by the
challenged regulation. Because the court is dismissing this action it accepts, without further
inquiry, plaintiffs’ allegation that one or more of these parties has standing.
2
The mandatory requirements of USCIT Rule 23(a) would seem to be met. See Baxter
Healthcare Corp. v. United States, 20 CIT 552, 925 F. Supp. 794 (1996) (finding USCIT Rule
23(a) satisfied, but not Rule 23(b), in HMT case)
Court No. 01-01134 Page 5
Accordingly, accepting all of plaintiffs’ factual allegations as true, the court will consider
defendants’ dispositive legal arguments.
A. 19 C.F.R. § 24.24(e) Is Not Unconstitutional
Plaintiffs argue that when taxes are involved only Congress may establish a statute of
limitations. Plaintiffs cite no case that stands for the proposition that when it permits an agency
to process tax refund claims, that such agency is prohibited from establishing reasonable time
limits to permit the orderly administrative processing of such claims. In Stearn v. Dep’t of the
Navy, 280 F.3d 1376, 1381-84 (Fed. Cir. 2002), the Federal Circuit upheld regulatory time bars
of claims against the government. The court finds nothing to prevent application of Stearn, a
civil service retirement benefits case, to HMT refund claims. Congress may delegate authority
under its taxing power in the same manner as under its other powers. See Skinner v. Mid
America Pipeline Co., 490 U.S. 212, 223 (1989). Furthermore, the regulatory time limit is not in
derogation of the statutory scheme. Rather it restores it. When the court in Swisher recognized
Customs refund procedure as applicable to these constitutional claims, a gap in the statute of
limitations which covers all actions before the court was created. See 28 U.S.C. § 2636.
Because the refund procedure established by Customs created the gap, Customs surely may
remedy this problem by filling the gap. The regulation at issue does nothing more than restore
the effect of the statute of limitations enacted by Congress. Customs has rule-making authority
under 26 U.S.C. § 4462(i) (2000) and properly exercised it here. There is no unconstitutional
delegation of authority.
Recently for purposes of deciding if interest is owed on HMT refunds, the Federal Circuit
ruled that the unconstitutional imposition of the HMT on exports does not give rise to a taking
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claim. U.S. Shoe v. United States, 296 F. 3d 1378 (Fed. Cir. 2002). If the unauthorized retention
of HMT itself is not a taking, similarly unauthorized limitation of the time period for filing an
HMT refund claim is not a taking.
If the regulation is authorized it is still not a taking. The HMT Fund is a public fund as to
which there can be no taking of private property. Id. at 1384. A time limitation on plaintiffs’
claims to a refund of amounts paid into that fund is not a taking of their property. Thus analysis
of whether the regulatory time limitation is an undue burden on plaintiffs’ property is not
required.
B. 19 C.F.R. § 24.24(e) does not give rise to a claim under the
Regulatory Flexibility Act (“RFA”), 5 U.S.C. § 603.
The purpose of the RFA is to address “the high cost to small entities of compliance with
uniform regulations.” Mid-Tex Elec. Co-op., Inc. v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985).
Agencies, however, are relieved of performing this analysis when they certify “that the rule will
not, if promulgated, have a significant economic impact on a substantial number of small
entities.” 5 U.S.C. § 605(b) (2000); see, e.g., State of Michigan v. U.S. Environmental Prot.
Agency, 213 F. 3d 663, 688-89 (D.C. Cir. 2000).
In accordance with § 605(b), Customs certified that a regulatory time limit for filing
refund claims would not have a significant economic impact on a substantial number of small
entities. See 66 Fed Reg. 34813, 34818 (July 2, 2001); 65 Fed. Reg. 78430 (Dec. 15, 2000).
Thus, Customs did not perform an RFA analysis. Plaintiffs argue that Customs committed error
by concluding that there would be no significant economic impact. They contend that the
imposition of a December 31, 2002 deadline for filing refund claims results in the denial of
approximately $200 million in HMT refunds for 100,000 exporters.
Court No. 01-01134 Page 7
Defendants argue that plaintiffs grossly exaggerate both the number of potential claimants
as well as the amount of unrefunded export HMT payments. Nevertheless, even if these figures
are accurate, they are irrelevant to the question of whether Customs was required to conduct an
RFA analysis here. Plaintiffs’ argument fails because it misconstrues the “economic impact”
relevant to an RFA analysis. As the D.C. Circuit has explained: “[I]t is clear that Congress
envisioned that the relevant ‘economic impact’ as the impact of compliance with the proposed
rule on regulated small entities.” Mid-Tex Elec., 773 F. 2d at 342 (emphasis added); accord
State of Colorado v. Resolution Trust Corp., 926 F. 2d 931, 948 (10th Cir. 1991).
The court declines to construe the RFA impact at issue here as the amount that might not
be recovered because some exporters had insufficient interest in complying with regulations, or
in keeping themselves apprised of properly promulgated regulations that they should know would
affect their business interests. Customs conclusion when it published the final regulations of no
significant impact for RFA purposes is correct. See 66 Fed. Reg. 34813, 34816 (July 2, 2001).
Plaintiffs’ alternative argument that Customs was arbitrary and capricious in not studying,
for the purposes of the “no significant economic impact” finding, the cost of compiling records
to make a request is inapposite. Customs searches its records upon receipt of a letter request.
Difficulties of claimants in searching their own records if Customs records are incomplete did
not change as a result of the regulation. In fact, the regulation changed no burden. Both before
and after the regulation, and even if the court invalidates the regulation, claimants would need to
decide whether they have a claim and if so, at least write a letter or fill out a form. Compliance
with the regulation imposed no new economic burden.
Court No. 01-01134 Page 8
CONCLUSION
The court observes the dicta in Swisher, 205 F. 3d at 1368, which that court made in
finding no time limit applicable prior to the regulations at issue, that Customs could “impose a
time limit in the future.” That is just what Customs did. It did so giving ample notice, both that
legally required and through practical means, to all concerned, and the regulation gives rise to no
cause of action.
Accordingly, this action is dismissed.
_________________________
Jane A. Restani
Judge
Dated: New York, New York
This 30th day of August, 2002.