| M E M O R A N D U M | |
| TO: | Clients and Friends of the Firm |
| FROM: | John M. Peterson Neville, Peterson LLP |
| RE: | Payment of Interest on Refunds of the Export Harbor Maintenance Tax (HMT: Federal Circuit Court of Appeals Decision) |
On July 23, 2002, the United States Court of Appeals for the Federal Circuit, in United States Shoe Corporation v. United States, ruled that exporters are not entitled to receive interest on refunds of the unconstitutionally-exacted Harbor Maintenance Tax. A copy of the United States Shoe decision is available on the Federal Circuit's website.
The Federal Circuit’s decision, while not unexpected, is disappointing. In our judgment, the decision removes any realistic chance that exporters will receive interest on refunds of the export HMT (whether administratively or judicially awarded), unless the United States Supreme Court elects to review the issue.
This Memorandum describes the recent United States Shoe decision, and discusses the steps which our firm proposes to take in response, to ensure that the interests of our exporting clients is protected.
The United States Shoe Decision
The Federal Circuit’s United States Shoe decision proceeds from the central assumption that “[i]nterest may only be recovered in a suit against the government if there has been a clear and express waiver of sovereign immunity by contract or statute, or if interest is part of compensation required by the Constitution” under the rules set out in Library of Congress v. Shaw, 478 U.S.310, 311, (1986). The Court then concluded that neither statute, the Constitution, nor equitable considerations support a payment of interest on export HMT refunds.
Statutory Claims for Interest
Addressing claims that interest is provided for by statute, the Federal Circuit reiterated its judgment that the federal tax interest statute, 28 U.S.C. Section 2411, is not applicable to the export HMT, effectively declining to revisit its decision in International Business Machines Corp., v. United States, 201 F.3d 1367, 1374 (Fed. Cir. 2000). The Court also held that 28 U.S.C. Section 2644, which provides for post-summons interest for claims arising under the CIT’s 28 U.S.C. Section 1581(a) “protest” jurisdiction, does not apply in HMT actions commenced under the CIT’s “residual” jurisdiction [28 U.S.C. Section 1581(i)]. Finally, the Court determined that the Section 505(c) of the Tariff Act [19 U.S.C. Section 1505(c)], which provides for the payment of interest on refunds of certain import duties, did not apply to exports. The Federal Circuit held that, while in certain issues arising under the HMT statute, the term “imports” might in some cases be read to include “exports”, such an interpretation should not be adopted where it would create an exception to the government’s sovereign immunity from an award of interest.
Constitutional Claims for Interest: The “Takings/Just Compensation” Clause
Next, the United States Shoe court held that the “takings clause” in the Fifth Amendment of the United States Constitution did not apply to the export HMT.
The Federal Circuit held that the export HMT was not an unlawful confiscation of “property”, since a regulatory action requiring the payment of money is not viewed as a “taking” of private property. The Court also ruled that, due to the relatively low rate of the tax (0.125% ad valorem] , the export HMT is not a confiscatory “taking” in violation of the Fifth Amendment. Since there had been no “taking” of private property, there was no requirement that exporter receive “just compensation” under the “takings clause” -- a remedy which has been construed as requiring that the government make the property owner whole, including a payment of interest in appropriate cases.
Furthermore, the Federal Circuit argued that the government’s retention of HMT funds, and accrual of interest on the earnings of those funds in the Harbor Maintenance Trust Fund, did not constitute a separate “taking” of private property, finding that the monies in the Trust Fund, and the interest generated thereby, are the property of the Federal Government, and not of the exporters who were taxed.
Constitutional Claims for Interest: The “Export Clause”
Next, the Federal Circuit ruled that the Export Clause of the Constitution, while incorporating a monetary remedy requiring the return of monies unlawfully taken, did not also require compensation in the form of interest. While conceding that the Export Clause contains an independent cause of action for return of monies unconstitutionally taxed, the Court held that this remedy would not be interpreted to require the payment of interest on those monies:
We are unwilling to import the [Supreme] Court’s interpretation of “Compensation” into the Export Clause where the word “compensation” does not appear. Instead, we prefer to “follow the express textual command of the Export Clause” United States v. International Bus. Machs, 517 U.S. 843, 862 (1996) . . . .
The Federal Circuit’s treatment of the Export Clause argument is particularly disappointing, since past Supreme Court rulings have held that the Export Clause should be interpreted to not only carry out its letter but also its spirit, which in our judgment means that the interpretation of the clause need not be strictly literal. By suggesting that interest is not payable on export refunds, the Court is effectively suggesting that the government could in fact tax exports to raise revenue, even if the revenue is from interest generated by monies temporarily taken -- in effect, forcing exporters to make an interest-free loan of money to the Government.
Equitable Claims for Interest
Finally, the Federal Circuit suggested that while an equitable award of interest can in certain cases be a powerful remedy to ensure fairness, it could not be invoked to overcome the rule that interest is not to be awarded against the government in the absence of an express provision to that effect.
Next Steps in the United States Shoe Appeal
It is likely that the plaintiff in United States Shoe will ask the United States Supreme Court to review the Federal Circuit’s decision. Since the case does involve issues regarding Constitutional interpretation, it might be attractive to the Supreme Court, but that Court only hears a small percentage of the petitions filed with it each year. As a practical matter, the chances are slim that the Supreme Court will hear a further appeal. But there is a chance nonetheless.
In our judgment, the Supreme Court might entertain an argument that the Export Clause requires a payment of interest, since this is an issue which has never been raised there. However, it the Supreme Court declines to hear the case, our judgment is that the United States Shoe decision ends any realistic chance that exporters will receive interest on HMT refunds.
Status of Export HMT Lawsuits and Administrative Refund Requests
Exporters’ pending United States Court of International Trade lawsuits which seek refunds of export HMTs, and the payment of interest thereon, are not immediately affected by the United States Shoe decision. They remain pending at the Court of International Trade’s docket, pending the resolution of a further appeal in International Business Machines Corp. v. United States.
However, exporters have filed some 7,571 administrative claims for refunds of export HMTs not previously awarded in Court judgments. Customs has been processing these refund applications on a first-come, first-served basis, but at a glacially slow pace. Only about 700 exporters have even received their initial refund reports. At the current rate of progress, Customs would not issue preliminary reports to all 7,571 exporters until the year 2011.
Obviously, to the extent the government is not obligated to pay interest on these monies, it has no incentive to proceed quickly, and, indeed, a powerful financial incentive to “drag its feet” in processing the refund applications. Our firm is now preparing a possible lawsuit to seek an order of the United States Court of International trade requiring Customs to process these applications more quickly. [During litigation, the CIT ordered Customs to process export HMT refund requests at a rate of not less than 500 per month, a pace which, if applied to the current petitions, would complete processing in a year]. Exporters wishing to participate in such a lawsuit may contact our offices.
We stand ready to furnish any additional information or assistance which may be required concerning this matter, or other HMT and Customs law issues.
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