Rack Room Shoes v. United States , 821 F. Supp. 2d 1341 ( 2012 )

SLIP OP 12 - 18
UNITED STATES COURT OF INTERNATIONAL TRADE
RACK ROOM SHOES, SKIZ
IMPORTS LLC, and Before: Donald C. Pogue, Chief Judge
FOREVER 21, Jane A. Restani, Judge
INCORPORATED, Judith M. Barzilay, Sr. Judge.
PlaintiffS, Consol. Court No. 07-00404
v.
UNITED STATES,
Defendant.
OPINION
[Defendant’s motion to dismiss is granted.]
Dated: February 15, 2012
John M. Peterson, George W. Thompson, Maria E. Celis,
Russell A. Semmel, and Richard F. O’Neill, Neville Peterson LLP,
of New York, NY, for the Plaintiff, Rack Room Shoes.
Michael T. Cone, McCullough Ginsberg Montano & Partners LLP,
of New York, NY, for the Plaintiff, SKIZ Imports LLC.
Damon V. Pike, The Pike Law Firm P.C., of Decatur, GA, for
the Plaintiff, Forever 21, Inc.
Reginald T. Blades, Jr., Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice, of Washington, DC, argued for the Defendant. With him
on the briefs were Tony West, Assistant Attorney General; Jeanne
E. Davidson, Director; and Aimee Lee, Trial Attorney. Of counsel
on the briefs were, Yelena Slepak, Office of Assistant Chief
Counsel, International Trade Litigation, United States Customs
and Border Protection, and Leigh Bacon, Office of the General
Counsel, United States Trade Representative.
Pogue, Chief Judge: In this action, Plaintiff Rack Room
Shoes and other United States importers assert that certain
Consol. Court No. 07-00404 Page 2
glove, footwear and apparel tariffs violate the Equal Protection
Clause of the Constitution. U.S. Const. amend. XIV, § 1, cl. 2.
Specifically, Plaintiffs argue that because the Harmonized Tariff
Schedule of the United States (“HTSUS”) uses the gender and age
of intended users of certain imported products to distinguish
between tariff rates, and because those tariff rates are not
equal, the HTSUS therefore unconstitutionally discriminates on
the basis of gender and/or age.1 The government moves to dismiss
for failure to state a claim.
Because we conclude that the Plaintiffs’ complaints do not
plausibly show an invidious governmental intent to discriminate,
as further explained below, we grant the government’s motion.
We have jurisdiction pursuant to 28 U.S.C. § 1581(i)(1).
BACKGROUND
Specific HTSUS provisions that Plaintiffs challenge were
previously addressed in Totes-Isotoner Corp. v. United States,
594 F.3d 1346, 1358 (Fed. Cir. 2010) (“Totes III”), cert. denied,
131 S. Ct. 92 (2010), affirming this court’s decision in Totes-
Isotoner Corp. v. United States, __ CIT __, 569 F. Supp. 2d 1315(2008) (“Totes I”), and the court’s denial of Plaintiff’s motion
1
For example, “[m]en’s” leather gloves classified in HTSUS
subheading 4203.2930 incur a duty rate of 14 percent ad valorem,
whereas gloves for “other persons” are classified under HTSUS
subheading 4203.2940 at the lower duty rate of 12.6 percent ad
valorem. See Harmonized Tariff Schedule of the United States, 19
U.S.C. § 1202.
Consol. Court No. 07-00404 Page 3
for rehearing, Totes-Isotoner Corp. v. United States, __ CIT __,
580 F. Supp. 2d 1371 (2008) (“Totes II”).2
In the Totes line of cases, we rejected Totes’ argument that
merely pleading the existence of a gender-based classification in
the HTSUS “suffices to establish an inference of unconstitutional
discrimination.” Totes II, 580 F. Supp. 2d at 1378.
Accordingly, we dismissed Plaintiff’s complaint for failure to
state a claim under the pleading standard set forth by the
Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544(2007) (“Twombly”).3 Totes I, 569 F. Supp. 2d at 1328; Totes II,
2
In Totes I, Plaintiff Totes challenged HTSUS headings
covering men’s and women’s leather gloves. Plaintiffs here
challenge, again, the same HTSUS rates for leather gloves, in
addition to certain HTSUS rates for apparel and footwear. The
Totes line of cases recognized that the Plaintiff had standing
and the Plaintiff’s challenge was not barred under the political
question doctrine. Totes III, 594 F.3d at 1352–53.
3
In Twombly, the Supreme Court ruled that court pleadings
require “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555. Rather, plausibility is the central
tenet of the Twombly pleading standard. Following Twombly, in
Totes III, the Court of Appeals held that initial “[f]actual
allegations must be enough to raise a right to relief above the
speculative level . . . [including] enough factual matter (taken
as true) to suggest that [a claim is plausible].” Totes III, 594
F.3d at 1354 (internal citation omitted).
In the context of discrimination claims, the Supreme Court
further explained the pleading requirements, holding that a
plaintiff “must plead sufficient factual matter to show that [the
government] adopted . . . [the] policies at issue . . . for the
purpose of discriminating[.]” Ashcroft v. Iqbal, 556 U.S. 662,
129 S. Ct. 1937, 1948–49 (2009). Determining whether a claim
meets the plausibility standards set forth in Twombly and Iqbal
requires that courts draw on “judicial experience and common
Consol. Court No. 07-00404 Page 4
580 F. Supp. 2d at 1380.
In affirming, the Court of Appeals held that the HTSUS
provisions at issue were not facially discriminatory. Totes III,
594 F.3d at 1358; see also id. at 1359 (Prost, J., concurring)
(“[T]he disputed tariff classification is not facially
discriminatory.”). HTSUS gender references are to the principal
or chief use of products by one sex or another. This is
different from the use of a suspect classification that requires
people to be treated differently depending on their sex. Thus,
the HTSUS gender references do not support an inference that the
classifications have a discriminatory purpose. There is nothing
“objectively invidious” about the tariff provisions’ reference to
gender. See Bray v. Alexandria Women’s Health Clinic, 506 U.S.
263, 270 (1993).
The Court of Appeals also extended its analysis to conclude
that an allegation of disparate impact in the tariff/tax context
is also insufficient to provide a basis for a plausible claim of
discriminatory purpose.4 Totes III, 594 F.3d at 1357–58 (“[W]e
sense,” when evaluating a plaintiff’s claim. Id. at 1950.
4
In Totes I and Totes II, we did not reach the issue of the
weight to be attributed to allegations of disparate impact
because the Plaintiff had failed to amend its complaint to make
such a claim. Totes I, 569 F. Supp. 2d at 1328 (“[B]ecause the
challenged tariff classifications are, at worst, ‘in between’
classifications that impose a facially discriminatory tax and
classifications that are not facially discriminatory, Plaintiff
Consol. Court No. 07-00404 Page 5
think that in the area of taxation and tariffs, something more
than disparate impact is required to establish a purpose to
discriminate for the purposes of pleading an equal protection
violation. . . . the mere existence of disparate impact does not
establish impermissible discrimination.”).5 After recognizing
must at least include an allegation that the challenged tariff
classifications distribute the burdens of the tax rate imposed in
a way that disadvantages one sex as a whole, or has a
disproportionate impact based on sex.”). After Totes opted not
to amend its pleadings, the court dismissed Totes’ complaint.
5
“[A]n equal protection claim requires alleging either (a)
that a law is facially discriminatory against natural persons, or
(b) that the law has a disparate impact on natural persons
resulting from a discriminatory purpose.” Totes III, 594 F.3d at
1359 (Prost, J., concurring) (citing Raytheon v. Hernandez, 540
U.S. 44, 52–53 (2003); Vill. of Arlington Heights v. Metro.
Housing Dev. Corp., 429 U.S. 252, 264–65 (1977)).
The Court of Appeals concluded, however, that the mere
existence of disparate impact is not a sufficient allegation.
Rather, as noted above, such impact must result “from a
discriminatory purpose.” Id. at 1359. Therefore, to proceed on
a disparate impact claim, a plaintiff must prove “‘[a]n invidious
discriminatory purpose[, which] may often be inferred from the
totality of the relevant facts,’” but “official action will not
be held unconstitutional solely because it results in a
[disparate] impact.’” Id. at 1356 (quoting Vill. of Arlington
Heights, 429 U.S. at 264–65; Washington v. Davis, 426 U.S. 229,
242 (1976)); see also Pyke v. Cuomo, 258 F.3d 107, 110 (2d Cir.
2001) (“[A] plaintiff seeking to establish a violation of equal
protection by intentional discrimination may proceed in ‘several
ways,’ including by pointing to a law that expressly classifies
on the basis of race, a facially neutral law or policy that has
been applied in an unlawfully discriminatory manner, or a
facially neutral policy that has an adverse effect and that was
motivated by discriminatory animus.”(emphasis added)).
Plaintiff Forever 21 urges the court to limit Totes III by
adopting a presumption that where tariff descriptions plausibly
suggest actionable discrimination based on gender or age, it will
be inferred that the government intended this discrimination to
Consol. Court No. 07-00404 Page 6
that all schemes of taxation necessarily contain some inherent
discriminatory impact, the Appeals Court held that “[i]n the area
of customs duties, even more than in the area of taxation, it is
hazardous to infer discriminatory purpose from discriminatory
impact.” Totes III, 594 F.3d at 1358.
Following the Supreme Court’s denial of writ of certiorari
in Totes III, we allowed the current Plaintiffs to re-file their
complaints, consolidating them into three test cases: Rack Room
Shoes v. United States (07-00404) and its member cases SKIZ
Imports LLC v. United States (11-00074), and Forever 21, Inc. v.
United States, (11-00075). Plaintiffs in these test cases assert
additional facts which they claim are sufficient to state a claim
of governmental intent to discriminate.
DISCUSSION
The precise issue now presented by the government’s motion
is whether Plaintiffs’ Amended Complaints, stripped of their
legal conclusions, contain sufficient facts to render plausible a
claim of governmental intent to discriminate by way of the tariff
rates at issue. Totes III, 594 F.3d at 1354–55; Twombly, 550
be invidious. Such an approach, however, is foreclosed by both
the majority opinion and the concurrence in Totes III, which
recognize that the tariff provisions at issue are not facially
discriminatory and require some plausible basis for an inference
of unlawful discriminatory intent or purpose.
Consol. Court No. 07-00404 Page 7
U.S. at 555–56; Iqbal, 129 S. Ct. at 1950.6
As noted above, the Court of Appeals held that the
challenged provisions of the HTSUS are not facially
discriminatory. Totes III, 594 F.3d at 1358. In addition, in
the context of tariffs, an allegation of disparate impact is also
insufficient to ground a discrimination claim. Id. at 1356.7 It
thus follows that Plaintiffs’ allegation in the Amended
Complaints that the identified tariff rates are facially
6
As in the Totes line of cases, the government again
asserts that this case should be dismissed because the Plaintiffs
lack third party standing. Because the Court of Appeals clearly
found that Totes had third party standing, Totes III, 594 F.3d at1359 n.2, this issue has already been resolved, and the court
need not address it further.
The government also asserts that the court may not hear
Plaintiff Skiz’s complaint because no agency action has taken
place that the court can review. Therefore, Defendant argues,
Skiz’s claim is not ripe for review.
The court need not decide this issue because Rack Room
Shoes’ and Forever 21's claims provide a sufficient basis to test
the adequacy of all Plaintiffs’ pleadings and, as discussed
infra, those pleadings fail to state a claim.
7
In Totes III, the Court of Appeals reasoned that tariffs
constitute a unique area of law, further diminishing the
sufficiency of a disparate impact claim. While “[i]n contexts
such as jury selection, employment, or fair housing, an
allegation of disparate impact may . . . be sufficient to make
out a prima facie case of discrimination . . . we think a
different approach is required in the tariff context.” Totes
III, 594 F.3d at 1356 (citations omitted). This distinction, the
Court of Appeals explains, exists because (1) Congress is
concerned with achieving trade policy objectives rather than
focusing on the characteristics of retail goods; and (2)
disparate treatment in this case is not necessarily invidious –
case law establishes that discrimination is inherent to taxation,
and Congress has broad authority to levy taxes, which by the
court’s reasoning, include import duties. Id. at 1356-58.
Consol. Court No. 07-00404 Page 8
discriminatory and disproportionately affect differently
gendered or aged users is also insufficient to render plausible
an inference of invidious discrimination.8
Therefore, Plaintiffs must now allege sufficient additional
facts to make plausible their claim that Congress intended to
discriminate between male and female users – or between older and
younger users – in the provisions of the HTSUS. Totes III, 594
F.3d at 1358. To move forward on their claim, Plaintiffs must
sufficiently plead “‘[a]n invidious discriminatory purpose[,
8
The Government also argues that Plaintiffs' disparate
impact pleading is flawed because Plaintiffs do not allege that
tariff rates consistently favor goods associated with one gender
or age over another. This is correct. Although Plaintiffs claim
that they, as importers, are “disproportionately impacted” by the
HTSUS tariff rates at issue, Rack Room Shoes Am. Compl. at ¶ 15,
ECF No. 9, there is no factual indication in the Amended
Complaints that the tariff classifications result in a
discriminatory application of the burdens of the tax to one
particular sex or age group. See Totes I, 569 F. Supp. 2d at1328 n.17 (“Cf. Engquist v. Oregon Dept. of Agriculture, 553 U.S.
591, 601 (2008)(“Our equal protection jurisprudence has typically
been concerned with governmental classifications that ‘affect
some groups of citizens differently than others.’ ” (quoting
McGowan v. Maryland, 366 U.S. 420, 425 (1961)))”). Thus any
alleged discriminatory impact is far from clear enough as to
plausibly indicate a discriminatory purpose. Cf. Yick Wo v.
Hopkins, 118 U.S. 356, 373 (1886) (discriminatory application of
regulatory laundry ordinance to Chinese subject, without reason,
found sufficient to infer discriminatory intent); Wengler v.
Druggists Mutual Insurance Co., 446 U.S. 142, 147–49 (1980)
(holding that a statutory provision – denying a widower benefits
on his wife’s work-related death unless he was either mentally or
physically incapacitated or could prove dependence on his wife’s
earnings but granting a widow death benefits without proof of
dependence – discriminated against both men and women, i.e.
working women and their male spouses).
Consol. Court No. 07-00404 Page 9
which] may often be inferred from the totality of the relevant
facts;’” however, agency action “will not be held
unconstitutional solely because it results in a [disparate]
impact.” Id. at 1356 (internal citation omitted); see also City
of Mobile v. Bolden, 446 U.S. 55, 66 (1980)(proof of purposeful
discrimination is necessary to an Equal Protection violation).
Plaintiffs concede that discriminatory purpose “implies more
than intent as volition or intent as awareness of consequences.”
Rack Room Shoes Mem. Opp’n. Def.’s Mot. Dismiss at 14, ECF No. 24
(“Rack Room Shoes Response”). Rather, discriminatory purpose in
this particular context arises only when Congress selects or
reaffirms a particular course of action “because of” and not
merely “in spite of,” its adverse effects upon an identifiable
group. Personnel Administrator of Massachusetts v. Feeney, 442
U.S. 256, 279 (1979). Plaintiffs must show that “the legislature
was motivated by discriminatory intent, rather than by other,
lawful action.” Rack Room Shoes Response at 11 n.10.
Accordingly, we review the additional factual allegations
Plaintiffs add to their Amended Complaints to determine whether
those allegations support a plausible inference of governmental
intent to discriminate based on the relevant tariff provisions’
adverse effects upon an identifiable sex or age group.
The Amended Complaints contain two such additional
allegations. First, Plaintiffs allege that “Congress intended to
Consol. Court No. 07-00404 Page 10
discriminate by directing and implementing classifications based
on gender when it could have used other non-gender factors to
distinguish or to separate merchandise for duty assessment
purposes, or could have used non-tariff measures to effectuate
governmental purposes other than raising revenue.” Rack Room
Shoes Am. Compl. at ¶ 31. Plaintiffs argue that because Congress
“has at its disposal a virtually infinite number of ways to
impose . . . customs duties” and instead chose to differentiate
between products by gender or age, it therefore must have
intended to discriminate between gender and age groups. Rack
Room Shoes Response at 16.
Plaintiffs’ assertion, however, adds nothing to the claim,
already rejected in Totes III, that the use of gender in tariff
classifications evidences a discriminatory purpose. Rather, it
simply re-asserts Plaintiffs’ rejected claim that the tariff
classifications at issue are facially discriminatory. Moreover,
Plaintiffs’ claim that Congress could have used other means is an
allegation built only upon the language of the provision, raising
nothing in the way of further facts, and indeed nothing in terms
of discriminatory intent. As such, these conclusory assertions
do not rise to the level of factual plausibility required by
Twombly and Iqbal.
Second, Plaintiffs cite the U.S. Tariff Commission’s Tariff
Consol. Court No. 07-00404 Page 11
Classification Study of 19609 for the proposition that certain
age and gender distinctions within the HTSUS are of
“questionable” economic justification.10 This commentary on the
merits of the distinctions between the proposed tariff rates is,
at most, a critique of the precursors to the tariff provisions
being challenged here and does not indicate Congressional intent
in any manner. Cf. Matrixx Initiatives, Inc. v. Siracusano, 131
S. Ct. 1309, 1322 (2011) (finding that reports from three medical
professionals and presenting a wide range of occurrences of
anosmia constituted more than a mere “handful of anecdotal
reports”). Moreover, the fact that these distinctions’ original
economic justification may have blurred with time does not render
their purpose discriminatory. On the contrary, it actually
9
Plaintiffs insist that the Tariff Classification Study is
“official legislative history” from a prior tariff, but offer
nothing other than their conclusory label to support this claim.
Forever 21 & SKIZ Resp. Def.’s Mot. Dismiss at 3, ECF No. 27
(“Forever 21 & SKIZ Response”). Indeed, the document submitted
appears to be authored by one person, providing his particular
version of events.
10
Specifically, Plaintiffs cite to a passage that states:
The proposed [TSUS provision] combines all McKay-sewed
leather footwear in one tariff provision . . . thereby
eliminating present distinctions . . . according to the
age and sex of the wearer for which the footwear is
designed. These distinctions are often difficult if
not impossible to make and their economic justification
is questionable.
Forever 21 & SKIZ Response at 3.
Consol. Court No. 07-00404 Page 12
reinforces the premise that such distinctions have a rational
historic purpose.
Congressional distinctions do not prove invidious intent.
As the Supreme Court has held, “[i]nherent in the power to tax is
the power to discriminate in taxation.” Leathers v. Medlock, 499
U.S. 439, 451 (1991); see also Washington v. Davis, 426 U.S. at
248. Indeed, tariffs often exist to protect domestic markets,
and, to achieve that end, Congress must use some form of
classification when setting tariff rates. See, e.g., J.W.
Hampton & Co. v. United States, 276 U.S. 394, 412–13 (1928).11
Defendant correctly notes that Plaintiffs’ argument “wholly
ignores [the] obvious commercial, practical, and trade
motivations Congress might have had for distinguishing certain
products by age or gender for purposes of setting tariffs. . . .”
[quoting Totes III]:
[t]he rates of duty applicable to different product
classifications are the result of multilateral
international trade negotiations and reflect reciprocal
trade concessions and particularized trade preferences.
The reasons behind different duty rates vary widely
based on country of origin, the type of product, the
circumstances under which the product is imported, and
the state of the domestic manufacturing industry. . . .
Further, differential rates may be the result of the
trade concessions made by the United States in return
11
(“More than a hundred years later, the titles of the
Tariff Acts . . . declared the purpose of those acts, among other
things, to be that of encouraging the industries of the United
States. Whatever we may think of the wisdom of a protection
policy, we cannot hold it unconstitutional.”)
Consol. Court No. 07-00404 Page 13
for unrelated trade advantages.
Totes III, 594 F.3d at 1357 (footnotes omitted). Def.’s Mem. in
Reply Pls.’Opp’n Def.’s Mot. Dismiss at 25, ECF No. 30. Without
more, Congress’s exercise of its right to choose delineating
factors such as the age or gender of a product’s intended user
when determining tariff rates does not raise a suggestion of
invidious intent to discriminate.12
It therefore follows that Plaintiffs’ Amended Complaints
have not asserted facts that are specific enough to have some
evident connection to potentially unlawful behavior. The absence
of such an apparent connection forecloses the conclusion that the
12
Indeed, historical evidence indicates that Congress
intended to protect the domestic market when setting tariffs
based on the gender of the intended wearer. For example, with
regards to gloves, “by actual or tacit agreement, the importers
were given control of the market in ladies gloves, while the
men’s glove business was left to the domestic producers.” Daniel
W. Redmond, The Leather Glove Industry in the United States 48
(1913) (unpublished Ph.D. dissertation, Columbia University).
It logically follows that the disparate tariffs were set in
order to maintain such circumstances, leading one glove importer
to conclude that
The tariff in force . . . has been and is now working
satisfactorily. The government obtains from it a large
revenue . . . American manufacturers are prospering
under it, and importers are able to exist and to supply
to the market gloves which can not be made here in the
same perfection, beauty, and elegance, or are not made
here at all[.]
Tariff Hearings Before the H. Comm. on Ways and Means, 60th Cong.
7141-43 (1909) (statement of Daniel Goldschmidt, Goldschmidt
Brothers Co.).
Consol. Court No. 07-00404 Page 14
Amended Complaints allege more than a “sheer possibility” of
invidious discriminatory conduct. It follows that the Amended
Complaints are not adequately pleaded so as to “plausibly give
rise to an entitlement to relief.” Iqbal, 129 S. Ct. at 1949–50.
There simply is nothing in the Amended Complaints that can
connect the tariff provisions and congressional action in a way
to suggest with plausibility the existence of a governmental
intent to discriminate.
CONCLUSION
For the forgoing reasons, this matter is dismissed with
prejudice. Judgment will be entered accordingly.
So ordered.
/s/ Donald C. Pogue
Donald C. Pogue, Chief Judge
Dated: February 15, 2012
New York, New York