Court Opinion

ID: 2722852
Source: CourtListenerOpinion
Date Created: 2014-09-02 21:00:43.966998+00
Date Added: 2024-06-11T10:02:56.984680
License: Public Domain

Slip Op. 14-101
                 UNITED STATES COURT OF INTERNATIONAL TRADE

                                            :
UNITED STATES,                              :
                                            :
              Plaintiff,                    :       Before: Gregory W. Carman, Judge
                                            :       Court No. 12-00173
                      v.                    :
                                            :
TENACIOUS HOLDINGS, INC.                    :
formerly known as Ergodyne Corp.,           :
                                            :
              Defendant.                    :
                                            :

                                           OPINION

[Defendant’s motion for referral to court-annexed mediation will be granted.]

       Joshua A. Mandlebaum, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice, of Washington, DC, for Plaintiff. With him on the brief were Stuart
F. Delery, Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White,
Assistant Director. Of counsel on the brief was Philip J. Hiscock, Staff Attorney, Office of
Associate Chief Counsel, U.S. Customs and Border Protection, of Chicago, IL.

       John M. Peterson, Maria E. Celis, Richard F. O’Neill, and Russell A. Semmel, Neville
Peterson LLP, of New York, NY, for Defendant.

                                                                                September 2, 2014

       Carman, Judge: Before the Court is the Motion for Referral to Court-Annexed Mediation

(“Mot.”) filed by Defendant Tenacious Holdings, Inc. (“Tenacious”), ECF No. 31. Plaintiff

United States (“United States” or “Government”) opposes the motion. See Pl.’s Resp. to Def.’s

Mot. for an Order Referring This Matter to Mediation (“Opp.”), ECF No. 32. For the reasons

that follow, the Court will grant the motion and an Order of Referral to Court-Annexed

Mediation will issued separately.
Court No. 12-00173                                                                           Page 2

                                          BACKGROUND

       The United States brought this penalty case against Tenacious seeking penalties for

negligent misclassification of work gloves. Compl., ECF No. 2. Prior to the initiation of this

action, Tenacious had already brought an action challenging the proper classification of the same

work gloves at issue in this case. See Ergodyne Corp. v. United States, Court No. 10-00200

(“Ergodyne”). Ergodyne is also pending before the Court.

       The current schedule for this case was set by a consent amended scheduling order. Order

of March 5, 2014, ECF No. 30. The current deadline for discovery is September 29, 2014, with

dispositive motions to be filed on or before November 10, 2014. Id.

       Besides the present motion for referral to mediation, the parties have filed several other

motions. Three of these motions seek to resolve discovery conflicts between the parties. See

Pl.’s Mot. to Compel Discovery Resps. and to Deem Unanswered Reqs. for Admission to be

Admitted, ECF No. 33 (June 16, 2014); Def.’s Opp’n to Pl.’s Mot. to Compel, and Cross-Mot.

for a Protective Order, ECF No. 34 (July 7, 2014); and Pl’s Mot. for Leave to File a Reply to

Def.’s Resp. to Pl.’s Mot. to Compel Discovery Resps. and to Deem Unanswered Reqs. for

Admission to be Admitted, ECF No. 35 (July 11, 2014). Plaintiff and Defendant have also filed

cross-motions for partial judgment seeking a resolution to the threshold legal question of the

proper tariff classification of the goods at issue in this case. See Pl.’s Mot. for Partial Summary

J., ECF No. 39 (August 5, 2014); Def.’s Cross-Mot. for Partial Summary J., ECF No. 42 (August

25, 2014).

       Because the Court finds the potential benefits of mediation outweigh the risks, the motion

will be granted.
Court No. 12-00173                                                                            Page 3

                                            DISCUSSION

       Tenacious claims referral to mediation is appropriate here for six reasons. First,

Tenacious claims that penalty actions are inherently suited to mediation because they often settle,

given that the Court has wide latitude over the central issue of whether the defendant importer

exercised reasonable care in classifying the goods at entry. Mot. at 3. Second, Tenacious notes

that the approximately $50,000 amount sought by the government in penalties and unpaid duties

could be exceeded by litigation expenses, giving the parties an incentive for early resolution. Id.

at 3-4. Third, Tenacious claims that the relevant provision of the tariff schedule is so ambiguous

as to make it unlikely that the negligence penalty would be found appropriate. Id. at 4-5. Fourth,

Defendant notes that the classification provision at issue expired in 2009, so the parties have no

interest in a court judgment to guide its future application. Id. at 5. Fifth, Tenacious contends

that the confidential forum of mediation may permit resolution without the waiver of attorney-

client privilege that would be necessary if Tenacious were to invoke an advice-of-counsel

defense to the negligent misclassification charge. Id. at 5-9. While Tenacious states that it has

not yet asserted an advice-of-counsel defense, it recognizes that it may eventually have to do so.

Id. at 8-9. Tenacious states that it “would prefer to seek a mediated resolution to this claim, if

possible, so that a waiver will not become necessary,” and suggests that such a waiver could

impact the Ergodyne litigation as well. Id. at 8. Tenacious notes that “referral to mediation may

likely enhance communication between the parties because there will be no risk that evidentiary

privileges will be waived in the process” given the strict confidentiality of mediation discussions.

Id at 8 n.4. Finally, Tenacious contends that referral to mediation will promote the goal of “just,
Court No. 12-00173                                                                           Page 4

speedy, and inexpensive” resolution embodied in the Court’s rules. Id. at 9-10 (quoting USCIT

R. 1).

         The United States opposes mediation. Opp. at 1. Noting that Tenacious’ motion was

filed the same day that Tenacious was due to produce certain discovery materials, the

government claims that “Tenacious filed the present motion in hopes of avoiding its obligation to

answer the Government’s outstanding discovery requests.” Id. The government argues that it

would be “a waste of time” to enter mediation before Tenacious produces discovery. Id. at 2.

From the government’s perspective, the merits of the case cannot be properly weighed in

mediation without full discovery. Id. at 4. The government states that it is “not interested in a

mediation in which Tenacious would provide a hand-picked sample of its attorney-client

communications” related to a potential advice-of-counsel defense, since that would allow

Tenacious to “reveal favorable advice while withholding unfavorable advice” as well as “the

information that its attorneys considered before providing advice.” Id. The government also

views the case “very seriously,” disagreeing with Tenacious’ view that the case’s relatively small

dollar value and lack of precedential value for future imports make it unimportant. Id. at 2.

         Court-annexed mediation in the Court of International Trade is governed by USCIT Rule

16.1 (“Rule 16.1”) and the Guidelines for Court Annexed Mediation (“Guidelines”) incorporated

therein by reference. Neither the consent of the parties nor a motion is required for referral to

mediation; instead, CIT judges have broad authority to make a mediation referral “[a]t any time

during the pendency of an action.” USCIT R. 16.1. The Guidelines provide that a CIT judge

may refer a case to mediation “in response to a consent motion,” “in response to a motion from

one or more parties,” or “sua sponte by the assigned judge.” Guidelines at 1. A motion by a
Court No. 12-00173                                                                            Page 5

party must be filed “not less than 30 days prior to the scheduled date for the filing of: a motion

for summary judgment; a motion pursuant to USCIT Rules 56.1 or 56.2; or trial (whichever

occurs first).” USCIT R. 16.1. At the time Tenacious filed its motion, the scheduled deadline

for dispositive motions was November 10, 2014, making the present motion timely under Rule

16.1. 1

          The parties have not provided authority regarding the manner in which the Court should

decide a contested motion for referral to mediation. The basis for determining such a motion is

not mentioned in Chapter 169 of Title 28 of the United States Code (containing statutes that

govern CIT procedure), the USCIT Rules, or previously-published CIT cases or decisions on

appeals therefrom. It has been held, however, that a United States district court may compel

mediation pursuant to its authority under local court rule, statute, the Federal Rules of Civil

Procedure, or the court’s inherent powers. In re Atlantic Pipe Corp., 304 F.3d 135, 140 (1st Cir.

2002) (“Atlantic Pipe”); see also 1 Sarah R. Cole et al., Mediation: Law, Policy and Practice

§ 9:2 (2011-12 ed.) (identifying the sources of authority to order mandatory nonbinding

mediation as “statutes, court rules and the court’s inherent power”).

          Here, the Court’s power to order mediation is grounded in Rule 16.1 and the Guidelines,

which do not establish any express limitations on that authority. The matter is left to the Court’s

discretion, limited by the bounds of its inherent powers. In deciding how to exercise that

discretion, it seems wise to accept guidance from the Court of Appeals for the First Circuit,

which identified four limits to a district court’s exercise of its inherent power to order mediation

1
  The Court notes that, after this motion became ripe and almost three months prior to the
November 10, 2014 motion deadline, the government filed a motion for partial summary
judgment. See Pl.’s Mot. for Partial Summary J., ECF No. 39 (August 5, 2014).
Court No. 12-00173                                                                             Page 6

in Atlantic Pipe: (1) “inherent powers must be used in a way reasonably suited to the

enhancement of the court’s processes, including the orderly and expeditious disposition of

pending cases”; (2) “inherent powers cannot be exercised in a manner that contradicts an

applicable statute or rule”; (3) “the use of inherent powers must comport with procedural

fairness”; and (4) “inherent powers must be exercised with restraint and discretion.” Atlantic

Pipe, 304 F.3d at 143 (internal quotations and citations omitted).

       In evaluating whether mediation may assist in the orderly and expeditious disposition of

this case, the Court has given careful consideration to the objections of the government.

Although the government is opposed to the idea that mediation may be successful, the Court is

mindful that “the results of mandatory mediation resemble those achieved in voluntary mediation

in terms of settlement rates and party satisfaction.” Cole et al., supra, § 9.2. Tenacious is correct

that mediation is more likely to be successful given that the amount in dispute here is relatively

low and the tariff provision at issue is no longer in effect and therefore resolution of this case is

unlikely to impact future cases. Noting these practical factors does not suggest that the case is

unimportant, merely that it may be amenable to early resolution. Ordering mediation is

consistent with Rule 16.1 and the Guidelines. Since there are no fees for court-annexed

mediation in the CIT, the financial concerns that sometimes arise with mediation referrals are

inapplicable. Referral to mediation will not cause any procedural unfairness, since the discovery

issues at the core of the government’s concerns will be fully addressable by order of the Court

should mediation be unsuccessful. Although the Court acknowledges the government’s concerns

about mediating without the robust information that it would have after the completion of

discovery, the Court does not agree that mediation is bound to fail at this stage. Many cases are
Court No. 12-00173                                                                         Page 7

resolved in mediation prior to the production of all discovery, and Rule 16.1 and the Guidelines

clearly contemplate referrals to mediation prior to the completion of discovery. The government

cannot accurately prejudge what information Tenacious may produce in the confidential setting

of mediation; if the government approaches the process with good faith, as the Court expects it to

do, it may be surprised to find that the case is more amenable to disposition than the government

fears.

                                          CONCLUSION

         For the foregoing reasons, Defendant’s motion will be granted. An Order of Referral to

Court-Annexed mediation will issue separately.

                                                               /s/Gregory W. Carman
                                                             Gregory W. Carman, Judge

Dated: September 2, 2014
       New York, NY