Lizarraga Customs Broker v. United States Bureau of Customs & Border Protection ( 2010 )

Slip Op. 10-113
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
LIZARRAGA CUSTOMS :
BROKER, :
:
Plaintiff, :
: Before: Richard K. Eaton, Judge
:
v. : Court No. 08-00400
:
BUREAU OF CUSTOMS AND BORDER :
PROTECTION, U.S. DEPARTMENT OF:
HOMELAND SECURITY; and ROSA :
HERNANDEZ, PORT DIRECTOR, :
OTAY MESA, CALIFORNIA, :
:
Defendants. :
______________________________:
OPINION AND ORDER
[Directing entry of defendant’s confession of judgment.]
Dated: October 4, 2010
Sandler, Travis & Rosenberg, P.A. (Arthur K. Purcell and
Kenneth N. Wolf), for plaintiff.
Tony West, Assistant Attorney General; Barbara S. Williams,
Attorney in Charge, International Trade Field Office, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Justin R. Miller), for defendants.
Eaton, Judge: This matter is before the court for
consideration of defendants’ confession of judgment in
plaintiff’s favor (“Confession of Judgment”) and their motion for
a stay of the execution of the previously entered remand order1
1
On March 26, 2010, the court remanded the case for
development of the record. See Guillermo Lizarraga Customs
Broker v. Bureau of Customs and Border Protection, Court No. 08-
00400, Order at 2—4 (Mar. 26, 2010) (“Remand Order”). The Remand
Court No. 08-00400 Page 2
pending the judgment’s entry. Defendants’ self-styled Confession
of Judgment was filed in response to the pending motion for a
preliminary injunction made by Guillermo Lizarraga Customs Broker
(“plaintiff” or “Lizarraga”). By his motion, Lizarraga sought,
among other things, an order “enjoining defendants from
suspending or deactivating [his] broker entry filer code in the
port of San Diego, C[alifornia].” Pl.’s Mem. Supp. Mot. Prelim.
Injunc. (“Pl.’s PI Mem.”) 1.
Jurisdiction is had under 28 U.S.C. § 1581(i)(4) (2006).2
For the reasons set forth below, the court will enter the
Confession of Judgment in accordance with this opinion.
BACKGROUND
I. Factual Background
A. Entry Filer Code
An entry filer code is a unique, three character code that
Customs and Border Protection (“Customs”) assigns to a licensed
customs broker. 19 C.F.R. § 142.3a(b)(1) (2009). Filing
“entries” means the filing of documentation required to ensure
the release of imported merchandise from Customs’ custody, or the
Order directed the appointment of an administrative law judge to
hear evidence and make findings related to plaintiff’s injury
claim. Id.2
Defendants conceded this Court’s jurisdiction over the case
in their Answer to the Verified Complaint. Answer ¶ 1.
Court No. 08-00400 Page 3
act of filing that documentation. 19 C.F.R. § 141.0a(a).
Entries can be filed either manually or electronically
through the Automated Broker Interface (“ABI”) system. 19 C.F.R.
§§ 143.34, 143.32(a). Currently, ninety-six percent of all
entries are filed electronically, and that figure is likely
higher for licensed brokers. See Automated Broker Interface
(ABI), CBP.GOV,
http://www.cbp.gov/xp/cgov/trade/automated/automated_systems/abi/
(last visited Sept. 30, 2010). Each electronically-filed entry
is identified by an entry number created by the broker. 19
C.F.R. § 142.3a(a), (b). The first three digits of the entry
number is the broker’s entry filer code. 19 C.F.R.
§ 142.3a(b)(1). Accordingly, the entry filer code identifies the
broker filing a particular entry. Id. The ABI system is part of
Customs’ Automated Commercial System (“ACS”) that allows entry
filers to both submit data electronically and receive messages
from Customs. 19 C.F.R. § 143.1. In order to file
electronically, the broker must have an active entry filer code
and be approved for participation in the ABI system. 19 C.F.R.
§§ 143.2, 143.34. The purpose of ABI is “to improve
administrative efficiency, enhance enforcement of customs and
related laws, lower costs[,] and expedite the release of cargo.”
19 C.F.R. § 143.1. The filer code allows the quick filing of
entries via ABI and “provides additional time, 10 business days
Court No. 08-00400 Page 4
from the date Customs releases the goods, to submit estimated
duties.” Pl.’s PI Mem. 7.
Once the entry information is put into the ACS system, it is
processed electronically through a set of “selectivity criteria.”
Defs.’ Mem. Opp. Mot. Prelim. Injunc. (“Defs.’ Mem.”) 4; see also
19 C.F.R. § 143.32(o). The selectivity criteria allow Customs to
target certain shipments for examination based on elevated risk
factors. Defs.’ Mem. 4.
Under 19 C.F.R. § 142.3a(d), “[t]he Assistant Commissioner,
Office of International Trade, or his designee may refuse to
allow use of an assigned entry filer code if it is misused by the
importer or broker.” It is the agency action taken by Customs to
suspend Lizarraga’s entry filer code that is the subject of this
case.
B. Suspension of Plaintiff’s Entry Filer Code
On October 21, 2008, the Director of Field Operations at the
Otay Mesa Port of Entry in San Diego, California wrote to the
Assistant Commissioner of the Office of International Trade and
“requested that Mr. Lizarraga’s entry filer code be deactivated
for misuse.” Defs.’ Mem. 6 (citing Administrative Record (“AR”)
152). Customs then conducted an “internal administrative review”
of the Director’s request. See Defs.’ Mem. 6—7 (describing the
review process). On November 3, 2008, the Assistant Commissioner
Court No. 08-00400 Page 5
“made the final determination to indefinitely and immediately
suspend Mr. Lizarraga’s entry filer code” for misuse (a final
determination later memorialized in a letter to Mr. Lizarraga
dated November 10, 2008). Defs.’ Mem. 7; see AR 156. The
Assistant Commissioner noted that “[t]he suspension is necessary
to prevent Mr. Lizarraga from using his individual filer code to
facilitate smuggling narcotics into the Customs territory of the
United States and allowing the use of his license, permit, and
filer code . . . by Mexican nationals.” AR 155. Customs did
not provide Lizarraga with notice of its internal administrative
review or an opportunity for a hearing, or solicit a written
submission from him prior to its final determination.
Instead, by letter dated November 10, 2008,3 Customs
notified plaintiff that, effective November 14, 2008, it would
“immediately and indefinitely” suspend his entry filer code. AR
156. The notice cited as authority for defendants’ action 19
C.F.R. § 142.3a(d),4 and stated that the action was “necessary to
prevent the misuse of [Lizarraga’s] filer code in the conducting
of customs business.” AR 156. The notice also stated that the
suspension was to prevent Mr. Lizarraga from using his individual
3
Plaintiff received this notice on November 11, 2008.
Affidavit of Guillermo Lizarraga ¶ 2.
4
Under 19 C.F.R. § 142.3a(d), “[t]he Assistant Commissioner,
Office of International Trade, or his designee may refuse to
allow use of an assigned entry filer code if it is misused by the
importer or broker.”
Court No. 08-00400 Page 6
filer code to “facilitate smuggling narcotics” and to ensure that
plaintiff’s “license, permit, name[,] and filer code are not used
by persons who are not employed by [Lizarraga] and authorized to
act for [Lizarraga].” AR 156.
The notice further stated:
By requiring you to use the alternative
filing procedures found in 19 C[.]F[.]R[.]
§ 142.3a(e), [Customs] will be able to
effectively review the accuracy of the
documentation you are submitting for the
entry of merchandise. This will enable you
to continue conducting customs business;
however, you will be required to file
entry/entry summary documentation using
customs assigned numbers with estimated
duties attached before the merchandise may be
released.
AR 156.
Plaintiff argues that Customs’ actions were an unlawful
denial of due process:
Besides being given only a few days
notice, Mr. Lizarraga was not afforded the
benefit of a hearing or an opportunity to
make a written submission prior to being
notified of his filer code deactivation.
Pl.’s PI Mem. 4.
In addition, although Customs stated that plaintiff would be
able to conduct his business without using his filer code,
Lizarraga insists that:
Without access to an entry filer code, in
today’s electronic environment plaintiff
cannot realistically compete with all other
brokers who have such filer codes. Without a
filer code, plaintiff will be forced to spend
Court No. 08-00400 Page 7
many hours manually filing entries, incur
delays in processing, and be required to
immediately pay estimated duties at the time
of filing. Moreover, because 90% of
plaintiff’s clients import FDA-regulated
produce, manual filing creates additional
processing delays, including the fact that
for weekends Customs has imposed on Mr.
Lizarraga a mere two-hour window to present
FDA documentation.
Pl.’s PI Mem. 7 (citations omitted); see also Affidavit of
Guillermo Lizarraga (“Lizarraga Aff.”) ¶¶ 7, 8 (stating that
without an entry filer code “it is virtually impossible to
conduct business” and “clients will go to other brokers with
active filer codes”). Thus, Lizarraga contends that “suspending
a broker’s entry filer code effectively puts that broker out of
business because it is impossible to compete with other licensed
brokers with active filer codes.” Pl.’s PI Mem. 2. Accordingly,
he argues, suspension of his filer code would be “paramount to a
de facto suspension or revocation of his license, in which
plaintiff has a property interest.” Pl.’s PI Mem. 2.
Plaintiff’s arguments are echoed by the amicus curiae brief
submitted by the National Customs Brokers and Forwarders
Association of America, Inc.:
The inability to use its entry filer
code is nothing less than crippling to a
customs broker’s business. . . .
An importer relies upon its broker for
the expedient and accurate filing of customs
entries. In today’s high-paced trade
environment, speed in clearing goods through
Court No. 08-00400 Page 8
Customs is of paramount importance to
importers. Automation in Customs’ systems
parallels this trend. Importers simply will
not employ the services of a customs broker
who can only offer manual entry filing, which
will demonstrably result in the delayed
release of shipments. In many ports, the
Customs entry personnel who would be required
to transmit manual entry data into ACS
typically only work from 8 a.m. to 4 p.m.
Thus, input into ACS for manual entry filings
could only occur during those times.
Moreover, Customs no longer assigns personnel
dedicated to this task since manual filing
has become so infrequent.
By contrast, an ABI-enabled broker can
file the entry at any time and secure the
release of the shipment from Customs
virtually 24 hours a day. Customs itself has
acknowledged this advantage to ABI, listing
“[e]xpedited cargo release” first among
several ABI benefits to the trade.
Br. of Amicus Curiae National Customs Brokers and Forwarders
Ass’n of America, Inc. in Support of Pl. 4—5 (footnotes omitted);
see also Mem. Amicus Curiae Pacific Coast Council of Customs
Brokers and Freight Forwarders Ass’ns in Support of Pl.’s Mot. 4
(“Lifting of a broker’s filer code is tantamount to putting them
out of business.”). Thus, plaintiff contends that defendants’
actions would “put Mr. Lizarraga out of business by removing his
right to file entries electronically via his filer code, thereby
degrading his commercial brokers’ license to the point of making
it virtually useless from a competitive standpoint” which
defendants “could not do without first providing statutory due
process.” Pl.’s PI Mem. 3.
Court No. 08-00400 Page 9
II. Proceedings in CIT
On November 13, 2008, plaintiff filed a motion for a
temporary restraining order and preliminary injunction seeking to
enjoin
defendants from suspending or deactivating
plaintiff’s broker entry filer code in the
port of San Diego, CA, in order to “prevent”
the “misuse” of that filer code. The
threatened action, made on three days notice
under the alleged authority of 19 C.F.R.
§ 142.3a(d), was made without a hearing, an
opportunity for petition, or other due
process.
Pl.’s PI Mem. 1 (footnote omitted). On November 14, 2008, after
a hearing with both sides present, the court granted plaintiff’s
motion, issued an order to show cause why a preliminary
injunction should not be granted, and set a hearing date. A
briefing schedule was established, which was subsequently
modified by the parties. Thereafter, defendants also agreed to
take no action against plaintiff’s entry filer code until the
court ruled on the preliminary injunction. See Lizarraga Customs
Broker v. United States, Court No. 08-00400, Order at 2 (Dec. 23,
2008) (acknowledging defendant’s consent not to suspend
plaintiff’s entry filer code during the time the preliminary
injunction is pending); see also Lizarraga Customs Broker v.
United States, Court No. 08-00400, Order at 1 (Feb. 24, 2010)
(reiterating that defendant will not suspend plaintiff’s entry
Court No. 08-00400 Page 10
filer code until the court rules on the motion for preliminary
injunction).
Also, on November 14, 2008, plaintiff filed his verified
complaint alleging, among other things, that he is a licensed
customhouse broker and that Customs has “issued a notice . . .
that plaintiff’s entry filer code will be deactivated effective
November 14, 2008.” Compl. ¶¶ 2, 5. Plaintiff’s complaint
alleges that “Customs’ plan to suspend or deactivate plaintiff’s
entry filer code without any explanation or hearing is
effectively a revocation or suspension of plaintiff’s broker’s
license without any showing of good cause and without the benefit
of a hearing or other due process protections.” Compl. ¶ 21.
In addition to the preliminary injunction, the complaint seeks
relief in the form of a declaratory judgment and a permanent
injunction restraining the defendants from suspending his entry
filer code “without a hearing providing for basic due process . .
. .” Compl. ¶ 23(c).
On January 12, 2009, defendants filed their answer to the
complaint. On January 23, 2009, defendants filed the
administrative record, and on March 27, 2009, they filed their
motions to dismiss and for judgment on the agency record. Since
that time, the parties have briefed requests to file amicus
curiae briefs, which the court granted on June 10, 2009. In
addition, the parties have briefed, and the court has heard
Court No. 08-00400 Page 11
arguments on, defendants’ motion for a stay pending voluntary
remand, which, based on plaintiff’s objections, the court denied
on August 6, 2009. Subsequently, the parties briefed and the
court granted defendants’ request to file an amended answer. The
amended answer was filed on September 17, 2009. Briefing of the
pending motions was complete as of November 13, 2009. Oral
argument was held on February 24, 2010. At the conclusion of the
February 24 hearing, the court stayed proceedings until March 10
to provide the parties an opportunity to pursue settlement.
Thereafter, the parties informed the court that they were unable
to reach a settlement during this period. On March 26, 2010, the
court issued an order remanding the matter to Customs solely for
the purpose of making a record with respect to plaintiff’s claim
that the suspension of his entry filer code would be tantamount
to a revocation of his broker’s license. See Remand Order.
On April 23, 2010, defendants filed the Confession of
Judgment5 in plaintiff’s favor and a motion for a stay of the
execution of the remand order pending entry of the Confession of
Judgment. Defendants insist that the Confession of Judgment ends
5
The Confession of Judgment requests “judgment granting
relief in favor of plaintiff Guillermo Lizarraga (Mr. Lizarraga),
as stated herein and in the proposed order, be entered . . . .”
Confession of Judgment 1. Further, it offers the following
“confession of judgment: we agree not to suspend or deactivate
Mr. Lizarraga’s entry filer code for any past fact or event
(i.e., for any fact or event that will have occurred prior to the
entry of the attached proposed Court order.).” Confession of
Judgment 3 (footnote omitted).
Court No. 08-00400 Page 12
the lawsuit because defendant’s “agreement” “not to suspend or
deactivate Mr. Lizarraga’s entry filer code for any past fact or
event (i.e., for any fact or event that will have occurred prior
to the entry of the attached proposed Court order) . . . , [means
that] there is no longer a justiciable case or controversy
between the parties and [thus] this action must be dismissed.”
Confession of Judgment 3.
In response, plaintiff argues that
While defendants may be free to confess
a judgment as to whether they will continue
to pursue filer code deactivation under the
facts of this case, that does not moot the
case, as plaintiff’s claims also involve
requests for declaratory and injunctive
relief aimed at addressing the legality of
defendant’s actions and preventing such
illegal actions from being repeated against
Mr. Lizarraga. As the legality of
defendants’ action remains in dispute, and
this Court has the power to issue declaratory
and injunctive relief, the action is not
moot.
Pl.’s Resp. Def.’s Conf. Judgment (“Pl.’s Resp.”) 2. Plaintiff
thus contends that the confession of judgment should be rejected
or, alternatively, “must not be construed as rendering moot the
claims contained in plaintiff’s Complaint, and this action should
not be dismissed.” Pl.’s Resp. 2. Oral argument on the
Confession of Judgment took place on July 15, 2010. See Tr. of
Conf. Or. Arg. (“Tr. Or. Arg.”).
Court No. 08-00400 Page 13
DISCUSSION
I. Mootness
This Court may decide legal questions only in the context of
actual cases or controversies. U.S. CONST. art. III, § 2. Where
an active case or controversy no longer exists, a case becomes
moot. See Alvarez v. Smith, __ U.S. __, __, 130 S. Ct. 576,
580—81 (2009)(“[A] dispute solely about the meaning of a law,
abstracted from any concrete actual or threatened harm, falls
outside the scope of the constitutional words “Cases” and
“Controversies.”) (citations omitted) (“Alvarez”).
The Supreme Court’s admonition, however, is subject to the
rule developed to address the situation where a defendant may
seek to repeat unlawful behavior. “It is well settled that a
defendant’s voluntary cessation of a challenged practice does not
deprive a federal court of its power to determine the legality of
the practice. If it did, the courts would be compelled to leave
the defendant . . . free to return to his old ways.” Friends of
the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S.
167, 189 (2000) (citation and quotation omitted). Given that,
“the test for mootness in cases such as this is a stringent one.
. . . A case might become moot if subsequent events made it
absolutely clear that the allegedly wrongful behavior could not
reasonably be expected to recur.” City of Mesquite v. Aladdin’s
Castle, Inc., 455 U.S. 283, 289 n.10 (1982) (quoting United
Court No. 08-00400 Page 14
States v. Concentrated Exp. Phosphate Ass’n, 393 U.S. 199, 203
(1968)). Accordingly, in order to demonstrate mootness, it must
be shown that unlawful behavior cannot “reasonably be expected to
recur.”
II. Defendant’s Confession of Judgment Moots Plaintiff’s Claims
Here, it is apparent that the Confession of Judgment
eliminates the “concrete actual or threatened harm” facing Mr.
Lizarraga. That is, Customs’ concession that it will “not
suspend or deactivate Mr. Lizarraga’s entry filer code for any
past fact or event,” when reduced to a judgment, will remove the
threat that his business will be harmed as a result of the
findings of the internal investigation. Thus, the controversy
over Customs’ disputed conduct will be rendered moot because any
injury resulting from the conduct will be voluntarily checked.
Plaintiff, however, would have the court continue the case
to make findings as to the legality of defendants’ behavior. To
do so, however, would require the court to continue its efforts
to create an adequate record with respect to the degree of injury
that would result to Mr. Lizarraga’s business if his entry filer
code were revoked (i.e., whether the indefinite suspension of an
entry filer code is a “de facto” suspension or revocation of a
broker’s license). See generally Remand Order. Put another way,
in order to determine plaintiff’s due process rights, the extent
Court No. 08-00400 Page 15
to which his entry filer code is required for him to carry on a
viable business would have to be known. See Lowe v. Scott, 959
F. 2d 323, 339 (1st Cir. 1992) (finding that a doctor had a
protected property interest in not only his medical license, but
also the part of the license that authorized him to supervise
nurse midwives).
Like Dr. Lowe, plaintiff contends that the deactivation of
his entry filer code negatively impacts the broker’s license in
which he has a protected property interest. In order to decide
this question, however, the court would have to create a factual
record. This was the purpose of the court’s Remand Order. To
continue this inquiry in the absence of a live case or
controversy, however, would result in the kind of holding the
Supreme Court has warned against. See Alvarez, __ U.S. at __,
130 S. Ct. at 580—81. In other words, it would continue these
proceedings even though any findings that would result would have
no effect on the concrete question that was the subject of the
lawsuit.
In addition, it has been sufficiently demonstrated that
defendants’ allegedly wrongful behavior cannot reasonably be
expected to recur. At oral argument defendants represented to
the court that Customs would not seek to summarily suspend a
broker’s entry filer code: “Well, we know for certain that
brokers are entitled to the [Administrative Procedure Act
Court No. 08-00400 Page 16
(“APA”)]6 if their entry filer code is deactivated, the
procedur[al] protections of the APA. So with respect to what
occurred to Mr. Lizarraga in this instance, the Customs treatment
of Mr. Lizarraga, it’s certain that that is not going to occur
again.” Tr. Or. Arg. 10:13—18. Further, in their amended answer
defendants state: “[D]efendants admit that the suspension or
deactivation of a broker’s entry filer code must comport with 5
U.S.C. § 558.” Am. Answer ¶ 22(iii); see also Tr. Or. Arg. at
11:7—19 (acknowledging same). Given defendants’ representations,
the court finds that the allegedly wrongful behavior at issue
cannot reasonably be expected to reoccur.
It is important to note, however, that the court is not
finding that the due process afforded by 5 U.S.C. § 558 will
necessarily be legally sufficient under the facts or
6
Counsel was making reference to 5 U.S.C. § 558(c),
entitled “Imposition of Sanctions; determination of applications
for licenses; suspension, revocation, and expiration of
licenses,” which states, in relevant part:
Except in cases of willfulness or those in which public
health, interest, or safety requires otherwise, the
withdrawal, suspension, revocation, or annulment of a
license is lawful only if, before the institution of
agency proceedings therefor, the licensee has been
given—
(1) notice by the agency in writing of the facts
or conduct which may warrant the action; and
(2) opportunity to demonstrate or achieve
compliance with all lawful requirements.
Court No. 08-00400 Page 17
circumstances of a future case. Thus, the court is not
determining whether the provisions of § 558 will provide adequate
legal due process under circumstances yet unknown.
CONCLUSION
For the reasons set forth above, defendants’ Confession of
Judgment shall be entered in the form determined by the court and
plaintiff’s pending motion for preliminary injunction is
therefore declared moot and accordingly denied.
/s/ Richard K. Eaton
Richard K. Eaton
Dated: October 4, 2010
New York, New York