Neville Peterson LLP: Customs and International Trade Law

February 28, 2000
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:	Federal Circuit Rules Exporters Can Recover All Unconstitutionally - Exacted HMTs Paid Since 1987 (Swisher Int'l, Inc. v. United States)

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     In a huge victory for all exporters, the U.S. Court of Appeals for the Federal Circuit (CAFC) has ruled that there is no statute of limitations on asserting claims for refund of the export Harbor Maintenance Tax (HMT), and that exporters may, by filing administrative refund requests with Customs, recover all export HMTs assessed since April 1, 1987, the date the HMT entered into force.

     The CAFC's decision in Swisher International Inc. v. United States, No. 99-1277 (February 28, 2000) -- in which our firm represented its clients as amici curiae -- confirms a theory of jurisdiction which our firm has espoused since 1994, when the HMT litigation first began.

     This Memorandum describes the Swisher International decision, and discusses the next steps that exporters must take to secure their remaining refunds of this unconstitutionally- assessed tax.

Background

     In United States Shoe Corp. v. United States, 118 S.Ct. 1290 (1998), the U.S. Supreme Court unanimously held the HMT on waterborne exports to be unconstitutional. Thereafter, the U.S. Court of International Trade (CIT) authorized an "early refund" procedure, designed to allow exporters who had sued for HMT refunds to recover the improperly-collected taxes.

     In fashioning the "early refund" procedure, the CIT held that the exclusive way for an exporter to claim a refund was by invoking the Court's 28 U.S.C. Section 1581(I) "residual" jurisdiction, which is subject to a two-year statute of limitations. To date, Customs has paid approximately $ 750 million in "early refunds" of the export HMT - all of those refunds involving taxes paid within two years prior to the commencement of a lawsuit demanding a refund.

     At the same time, the CIT designated several "test cases" for the purpose of resolving collateral issues relating to the HMT. One of these cases was Swisher International, in which the plaintiff asserted that the Court could also exercise jurisdiction over export HMT claims using its 28 U.S.C. Section 1581(a) "protest" jurisdiction.

     The jurisdictional theory in Swisher was that an exporter may seek a refund by filing an administrative refund application with Customs under 19 C.F.R. Section 24.25(e), demanding a refund of HMTs paid, on the ground that they were unconstitutionally collected. A Customs decision denying a refund application constitutes a "decision of the Customs Service" as to a "charge or exaction . . . within the jurisdiction of the Secretary of the Treasury", and may thus be protested under 19 U.S.C. Section 1514(a)(4). When such a protest is denied, the exporter may file an action before the CIT within 180 days, invoking the Court's 28 U.S.C. Section 1581(a) "protest jurisdiction".

     Since there is no time limit on filing administrative refund applications under 19 C.F.R. Section 24.25(e), this methodology would allow exporters to seek refunds of all HMTs paid since the tax entered into force on April 1, 1987.

     The CIT rejected this theory of jurisdiction, arguing that the Section 24.25(e) refund application process was "voluntary", rather than mandatory, and suggesting that exporters should not be permitted to control the applicable statute of limitations. The government also argued that the U.S. Shoe decision had established the CIT's Section 1581(I) "residual" jurisdiction as the exclusive means for exporters to seek HMT refunds.

     The CIT's Swisher decision was appealed to the Federal Circuit.

The Federal Circuit's Swisher Decision

     Reversing the CIT, the Federal Circuit has now ruled that, while there may have been no protestable "decision of the Customs Service" under the facts of the U.S. Shoe challenge to the export HMT, there was such a protestable decision under the facts of the Swisher case.

     The Federal Circuit ruled that the 19 C.F.R. Section 24.25(e) refund application process was not "voluntary", but rather constituted on actual and effective mechanism for seeking refunds of the HMT. To hold otherwise, the Federal Circuit noted, would be to suggest that exporters (and others) seeking HMT refunds could or should completely bypass administrative refund processes and proceed to court for refunds.

     The CAFC further held that Customs' decision denying an exporter's Section 24.25(e) refund application was a protestable "decision of the Customs Service" regarding a "charge or exaction", and thus protestable. The appellate court held squarely that the HMT was a "charge or exaction" of the kind made protestable by statute, holding that a decision refusing to refund excessive duties or taxes is a "negative decision or finding which amounts to an exaction", citing Eurasia Import Co. v. United States, 31 CCPA 220 (1940).

     Finally, the CAFC's Swisher decision held that nothing in the HMT statute or its implementing regulation imposed a time limitation upon a claim for a refund of HMTs, and that the Court would not accept the Government's invitation to impose one. In this regard, the Court noted that Customs obviously believes that the agency is not subject to any two-year limitation in auditing exporters, or in demanding payments of additional HMTs, and that the Court would not impose such a limitation on exporters seeking refunds.

     Finally, the Swisher court noted that allowing exporters to seek refunds of all unconstitutionally-exacted HMTs would undo a fundamental injustice:

Allowing exporters to seek refunds of all HMT paid since 1987 also avoids a fundamental unfairness to those exporters who did not have the resources to mount test litigation in the district court or the Court of International Trade on the constitutionality of the export HMT. In contrast, if we were to hold that a request for refund was not a protestable decision, Swisher, and others, would be limited to recovering only that HMT paid within two years before filing suit in the Court of International Trade. Given that the constitutionality of the HMT was not seriously questioned until 1994 and not completely resolved until 1998, such a holding would bar recovery of much of the unconstitutional HMT paid by exporters between 1987 and 1998. Indeed, some exporters with limited legal resources might be completely barred from recovering their payments of the unconstitutional tax. Erroneous overpayments during the same period due to miscalculations, however, would be recoverable even if the miscalculation was not discovered until today. We decline to create such an anomalous situation, although the government so urges. Finding no reason to believe that a request for a refund, based on a clerical error, is not a protestable decision (and thus not time barred two years from collection), we see no reason to treat differently requests based on constitutional error.

Next Steps

     Exporters will want to take a moment to savor this hard - one victory. The next question, of course, is what actions are likely to flow from the Swisher decision.

     First, we note that, for all of our firm's export HMT clients, we have filed administrative refund requests and protests of the kind needed to seek refunds under the procedures set out in Swisher. We will promptly ask Customs to grant these protests and pay refunds.

     The government will have sixty days to decide whether it will seek rehearing of this decision by the CAFC, or whether it will ask the Supreme Court to issue a writ of certiorari to hear the issue. It is too early to predict what further avenue of appeal the government might attempt; while it is perhaps likely that the government will ask the Supreme Court to review the issue, we consider it less than likely that the Supreme Court will agree to hear the case.

     We do not expect the Swisher decision to result in a flood of new 28 U.S.C. Section 1581(a) lawsuits in the CIT. Since the Supreme Court has held the tax unconstitutional, we expect that Customs will implement a program for granting refunds administratively following the filing of 19 C.F.R. Section 24.25 refund requests. Whether this administrative procedure will be carried out under judicial supervision remains to be seen; however, we expect that Customs will rely upon the resources of the outside accounting firm which it engaged to help it process the "early refunds" of the export HMT.

     It should be noted that exporters can file Section 24.25(e) requests for refund of the export HMT in respect of all taxes paid since April 1, 1987, (except, of course, those taxes previously refunded by the CIT). Exporters who have never brought litigation seeking tax recoveries are also free to file Section 24.25(e) petitions, seeking refunds of all export HMTs which they have paid since April 1, 1987.

     Our firm stands ready to furnish any assistance which companies may require in seeking export HMT refunds. Obviously, it will be helpful if exporters have copies of their Customs Form 349 HMT returns, and/or copies of canceled check representing payment of the HMTs.

     One issue to be addressed is whether Customs will be required to pay 19 CFR Section 24.25(e) claimants interest on refunds of unconstitutionally-imposed export HMTs. We suspect Customs will take the position that refunds should be paid without interest; however, in our judgment, future litigation may be necessary to obtain interests on these payments, and our firm is looking into litigation possibilities.

     We are pleased we can report this favorable decision. Our firm stands to furnish any additional information or assistance which may be required with respect to seeking HMT refunds.

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