Court Opinion

ID: 4202255
Source: CourtListenerOpinion
Date Created: 2017-09-08 21:04:00.369811+00
Date Added: 2024-06-11T14:40:49.569054
License: Public Domain

Slip Op 17-123

               UNITED STATES COURT OF INTERNATIONAL TRADE

KENT INTERNATIONAL, INC.,

                           Plaintiff,
                                                   Before: Leo M. Gordon, Judge
      v.
                                                   Court No. 15-00135
UNITED STATES,

                           Defendant.

                                 OPINION and ORDER

[Defendant’s partial motion to dismiss denied.]

                                                              Dated: September 8, 2017

        Philip Y. Simons and Jerry P. Wiskin, Simons & Wiskin, of So. Amboy, NJ for
Plaintiff Kent International, Inc.

      Hardeep K. Josan, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice, of New York, NY, for Defendant United States. With her on
the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E.
Davidson, Director, Amy M. Rubin, Assistant Director. Of counsel on the brief was
Yelena Slepak, Office of Assistant Chief Counsel, International Trade Litigation,
U.S. Customs and Border Protection of New York, NY.

      Gordon, Judge: Before the court is Defendant United States’ partial motion to

dismiss the second and third causes of action (“Count 2” and “Count 3” respectively) of

Plaintiff’s complaint pursuant to USCIT Rule 12(b)(6)1. Defendant seeks to dismiss

Plaintiff’s Count 2, which alleges the existence of an established and uniform practice

1
 The court renumbered a motion to dismiss for failure to state a claim from USCIT
Rule 12(b)(5) to 12(b)(6) in 2015 to bring the USCIT Rules into alignment with the
Federal Rules of Civil Procedure.
Court No. 15-00135                                                                 Page 2

under Section 315 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1315(d),2 and

Count 3, which alleges the existence of a treatment under 19 U.S.C. § 1625(c) and

19 C.F.R. § 177.12(c)(1)(i). See Def.’s Partial Mot. to Dismiss. at 1, ECF No. 16

(“Def.’s Mot.”); see also Compl. ¶¶ 49, 72-74, ECF No. 9. Plaintiff responded and cross-

moved to stay consideration of Defendant’s motion until the court resolved Plaintiff’s first

cause of action, a challenge to the classification of the imported merchandise. Pl.’s

Cross-Mot. to Stay Def’s. Partial Mot. to Dismiss & Pl.’s Opp. to Def.’s Partial Mot. to

Dismiss at 2, ECF No. 18. The court denied Plaintiff’s motion to stay and reserved

decision on Defendant’s motion to dismiss. See Kent Int’l Inc. v. United States, 40 CIT

____, 161 F. Supp. 3d 1340 (2016) (“Kent I”). For the reasons set forth below, the court

denies Defendant’s motion to dismiss Counts 2 and 3 of Plaintiff’s complaint.

                                      I. Background

      The background of this litigation is summarized briefly below and provided in

detail in Kent I. Plaintiff imported a product known as WeeRide Kangaroo child bicycle

seats that U.S. Customs and Border Protection (“Customs”) classified under HTSUS

subheading 8714.99.80, dutiable at 10% ad valorem. Plaintiff raises three claims in its

complaint: (1) that the subject merchandise is properly classifiable under HTSUS

subheading 9401.80.40, duty-free;3 (2) that Customs had an established and uniform

practice of classifying child bicycle seats under HTSUS subheading 9401.80; and

2
  Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions
of Title 19, U.S. Code, 2012 edition.
3
  If Plaintiff prevails on Count 1, its classification claim, the court may not have to reach
either Count 2, the established and uniform practice claim, or Count 3, the treatment
claim.
Court No. 15-00135                                                                Page 3

(3) that the imported merchandise is classifiable under HTSUS subheading 9401.80

because Plaintiff is entitled to the same treatment afforded other importers of child

bicycle seats pursuant to 19 C.F.R. § 177.12. Compl.

                                    II. Standard of Review

      In deciding a USCIT Rule 12(b)(6) motion to dismiss for failure to state a claim

upon which relief can be granted, the court assumes all factual allegations to be true

and draws all reasonable inferences in the plaintiff's favor. Cedars-Sinai Med. Ctr. v.

Watkins, 11 F.3d 1573, 1583-84 & n.13 (Fed. Cir. 1993).

      A plaintiff's factual allegations must be “enough to raise a right to relief above the

speculative level on the assumption that all the allegations in the complaint are true

(even if doubtful in fact).” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim of relief that is plausible on its face.’” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

                                     III. Discussion

      Plaintiff alleges that, in 2005, Customs, through its New York Office (“New York

Customs”), issued a ruling letter NY L86862 (“2005 Ruling”) classifying Plaintiff’s

imported child bicycle seats under HTSUS heading 8417, dutiable at 10 % ad valorem.

Compl. ¶ 21. Plaintiff further alleges that between 2007 and 2011 New York Customs

issued other ruling letters to Bell Sports (“Bell Ruling”) (2007), Todson Inc. (“Todson

Ruling”) (2009), and Brix Child Safety Inc. (“Brix Ruling”) (2011) (collectively, “Child

Bicycle Seat Rulings”), classifying similar imported child bicycle seats under HTSUS
Court No. 15-00135                                                               Page 4

heading 9401, duty free. Compl. ¶¶ 22, 29, 35. According to Plaintiff, from Fall 2007

through September 2014, various importers made numerous entries of child bicycle

seats, with “some of these entries . . . [occurring] at ports other than those utilized by

plaintiff,” and that Customs liquidated all of those entries under HTSUS subheading

9401.80, duty free. Id. ¶¶ 39-41, 46.

      Plaintiff claims it made a series of entries of the subject merchandise at the Port

of Newark (“Newark Customs”) that Newark Customs classified under HTSUS

subheading 8417.99.00, which, in turn, Kent protested relying on the Bell and Todson

Rulings. Id. ¶¶ 23-27, 31-32, 58-63. In conjunction with its protests, Kent also filed two

Applications for Further Review (“AFRs”), seeking review by Customs Headquarters

(“Headquarters”) of its claim for duty free classification. Id. ¶¶ 24-26. Newark Customs

approved Kent’s first set of protests, but did not refer the first AFR to Headquarters

because it failed to meet the applicable criteria for an AFR. Id. ¶¶ 25, 59. Kent further

claims that, after approving Plaintiff’s first set of protests, Newark Customs agreed to

send Kent’s second set of protests to Headquarters for review in light of the Bell Ruling.

Id. ¶¶ 27-28, 30. Kent further alleges that Newark Customs subsequently advised

Plaintiff that its second AFR was sent to Headquarters. Id. ¶¶ 28, 30, 66. Kent also

claims that Newark Customs approved Plaintiff’s second set of protests, id. ¶ 31, but

that Headquarters did not act on the second AFR in light of the approval of the protests

by Newark Customs, id. ¶ 68.

      Additionally, Plaintiff alleges that it made entries at the Port of Long Beach (“Long

Beach Customs”), seeking duty free classification for its subject merchandise. Long
Court No. 15-00135                                                              Page 5

Beach Customs denied Kent’s claimed classification, which was protested in early 2011

(“Long Beach protests”). Id. ¶¶ 33-34, 69. In conjunction with its protests, Kent

maintains that it filed a third AFR in April 2011, followed by supplemental submissions in

2014, seeking Headquarters’ consideration of its duty free claim for the subject

merchandise. Id. Plaintiff claims that, in the course of considering the Long Beach

protests, Headquarters, in September 2011, advised Plaintiff that the Child Bicycle Seat

Rulings were “not correctly decided” and would be revoked in late 2011. Id. ¶ 37.

However, revocation did not occur for almost three years until July 2014, when

notification of the revocation was published. Id. ¶ 38 (citing 48 Cust. B. & Dec. 29

(July 23, 2014) (“Revocation Ruling”)). Thereafter, in February 2015, Customs denied

Plaintiff’s Long Beach protests and issued HQ Ruling H170637 (“2015 Ruling”),

confirming the 2005 Ruling that Kent’s child bicycle seats are classifiable under HTSUS

8417.99.00, dutiable at 10% ad valorem. Id. ¶ 69.

      For ease of reference, set forth below is a timeline of the key rulings and actions

taken by Customs in this action:
Court No. 15-00135                                                                 Page 7

absence of notice that a change in classification will occur,” to reasonably expect

adherence to that classification. Heraeus-Amersil, Inc. v. United States, 9 CIT 412, 416,

617 F. Supp. 89, 93 (1985), aff’d, 795 F.2d 1575 (Fed. Cir. 1986). Factors that suggest

the existence of a “de facto” EUP include: (1) a high number of entries resulting in the

alleged uniform classifications, (2) a high number of ports at which the merchandise

was entered, (3) an extended period of time over which the alleged uniform

classifications took place, and (4) a lack of uncertainty regarding the classification over

time. Id., 9 CIT at 415-16, 617 F. Supp. at 93.

       Turning to these four factors, Kent alleges that Customs classified numerous

entries of child bicycle seats, duty free, under HTSUS subheading 9401.80 for multiple

importers at multiple ports, other than the ports utilized by the Plaintiff. Compl. ¶¶ 39-41,

46. Plaintiff further alleges that over a seven year period—between 2007 and 2014—

Customs classified child bicycle seats for Bell, Todson, and Brix under HTSUS heading

9401, duty free. Id. ¶¶ 22, 29, 35, 47. Kent also claims that, despite the 2005 Ruling,

Customs granted Kent’s protests for duty free classification for the Newark entries of its

imported merchandise, but failed to grant Kent the same classification for its Long

Beach entries. Id. ¶¶ 48, 58, 60, 69. It is true that Plaintiff has not alleged a specific

number of entries and has not identified a specific number of ports, other than Newark

and Long Beach. Nevertheless, the court can reasonably infer from these allegations

that there were more than a small number of entries of child bicycle seats imported by

Kent and others at more than two ports over a more than just a few years. As to the final
Court No. 15-00135                                                                Page 8

factor, it appears that Plaintiff has alleged the existence of a series of rulings and

actions by Customs on protests that reflect uncertainty as to the correct classification of

imported child bicycle seats.

        Therefore, Plaintiff’s allegations set forth in Count 2 contain sufficient factual

matter, taken as true, of the plausibility of a claim for an established and uniform

practice. Whether Plaintiff can prove the existence of the EUP is a different matter.

                                 B. Count 3 - Treatment

        In Count 3, Plaintiff claims that Customs established a “treatment” with regard to

imports by Bell, Todson, and Brix, liquidating their entries duty-free under HTSUS

subheading 9401.80. Plaintiff further alleges that because of that “treatment” Customs

should have liquidated Plaintiff’s entries in the exact same manner—duty free. Compl.

¶ 74.

        The concept of a “treatment” is found in 19 U.S.C. § 1625(c), which provides, in

relevant part:

        A proposed interpretive ruling or decision which would—

               (2) have the effect of modifying the treatment previously accorded
        by the Customs Service to substantially identical transactions;

        shall be published in the Customs Bulletin. The Secretary shall give
interested parties an opportunity to submit, during not less than the 30-day period
after the date of such publication, comments on the correctness of the proposed
ruling or decision. After consideration of any comments received, the Secretary
shall publish a final ruling or decision in the Customs Bulletin within 30 days after
the closing of the comment period. The final ruling or decision shall become
effective 60 days after the date of its publication.

19 U.S.C. § 1625(c)(2).
Court No. 15-00135                                                               Page 9

      While the term ”treatment” is not defined in § 1625, the implementing regulation

provides guidance on what constitutes a “treatment:”

      (c) Treatment previously accorded to substantially identical transactions -

          (1) General. The issuance of an interpretive ruling that has the effect of
      modifying or revoking the treatment previously accorded by Customs to
      substantially identical transactions must be in accordance with the
      procedures set forth in paragraph (c)(2) of this section. The following rules
      will apply for purposes of determining under this section whether a
      treatment was previously accorded by Customs to substantially identical
      transactions of a person:

             (i) There must be evidence to establish that:

                (A) There was an actual determination by a Customs officer regarding
             the facts and issues involved in the claimed treatment;

                (B) The Customs officer making the actual determination was
             responsible for the subject matter on which the determination was made;
             and

                 (C) Over a 2-year period immediately preceding the claim of treatment,
             Customs consistently applied that determination on a national basis as
             reflected in liquidations of entries or reconciliations or other Customs
             actions with respect to all or substantially all of that person's Customs
             transactions involving materially identical facts and issues;

             (ii) . . .

             (iii) . . .

             (iv) . . .

19 C.F.R. § 177.12(c)(1) (2014). For Customs to modify a “treatment” previously

accorded to substantially identical transactions, it must subject the modifying

interpretive ruling or decision to the notice and comment process. Id. § 177.12(c)(2).
Court No. 15-00135                                                                  Page 10

       To ultimately prevail on its claim of a treatment, Kent must establish, at least, the

following: (1) that there was a treatment previously accorded by Customs, meaning it

must show what specific entries of the subject merchandise were previously classified

under the desired tariff provision; (2) that the subject entries are “‘substantially identical

transaction[s]’” to the previous treatment; (3) that Customs has made a “‘proposed

interpretive ruling or decision’” that would have the effect of modifying the previous

treatment with respect to the entries in question; and (4) that the proposed interpretive

ruling or decision violated the notice and comment requirements of this statute.

Kahrs Int’l, Inc. v. United States, 33 CIT 1316, 1354, 645 F. Supp. 2d 1251, 1286 (2009)

(quoting 19 U.S.C. § 1625(c)(2)).

       Again, in order for Count 3 to survive a motion to dismiss, Plaintiff must make

sufficient factual allegations to plausibly establish on its face each element of a claim of

treatment. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal,

556 U.S. 662 (2009) (“A claim has facial plausibility when the pleaded content allows

the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.”). Accordingly, the court will examine Plaintiff’s allegations in light

of each of those elements.

                             i. The Existence of a Treatment

       “[Plaintiff] must demonstrate there was a ‘treatment previously accorded by . . .

Customs . . . .’ [19 U.S.C.] § 1625(c)(2). That is, it must show what specific entries of

[Plaintiff’s] products were previously classified under the desired tariff subheading . . . .”
Court No. 15-00135                                                                 Page 11

Kahrs Int’l, 33 CIT at 1354, 645 F. Supp. 2d at 1286. Therefore, to survive Defendant’s

motion to dismiss, the court must find that Plaintiff has pled sufficient facts to plausibly

claim that the duty-free rate accorded to other child bicycle seats resulted from an

actual determination by Customs, and that this determination was consistently applied

on a national basis over a two-year period immediately preceding the claim of

treatment. 19 C.F.R. § 177.12(c)(1)(i).

       Plaintiff alleges that Customs liquidated the entries of three other importers of

substantially identical child bicycle seats at a duty-free rate for years, between

September 21, 2007 and September 22, 2014. Compl. ¶¶ 52-57. The alleged treatment

ended on September 22, 2014, the effective date of Customs’ Revocation Ruling.

Plaintiff alleges that Bell, Todson, and Brix made entries “at ports other than those

utilized by Plaintiff.” Id. ¶¶ 39-41. Plaintiff also alleges that, while it was "required to

enter its child bicycle seats under HTSUS subheading 8714.99.00, because it had to

follow . . . [the 2005 Ruling],” it successfully protested those decisions with Newark

Customs. Id. ¶¶ 53, 58, 60.

       Therefore, although the factual allegations in Count 3 are not perfectly clear, it

appears that Plaintiff is claiming that Customs accorded duty-free treatment to children’s

bicycle seats between September 21, 2007 (at the latest), and September 22, 2014, as

evidenced by the Child Bicycle Seat Rulings and subsequent liquidation of duty free

entries for Plaintiff by Newark Customs, and for Bell, Todson, and Brix at other ports. It

also appears that Plaintiff’s requested relief is the duty-free reliquidation for its entries
Court No. 15-00135                                                                Page 12

from (at the latest) September 21, 2007 through September 22, 2014 by Long Beach

Customs.

       Defendant does not dispute that the Child Bicycle Seat Rulings constituted actual

determinations by Customs. Rather, Defendant argues that “Kent simply cannot

produce [sufficient] evidence” to prove that Customs made an actual determination and

consistently applied that determination on a national basis over the two-year period

immediately preceding the claim of treatment. Def.’s Mot. at 9. Defendant’s argument is

premature. Kent, as the non-moving party in a motion to dismiss, does not have to

produce any evidence. Factual allegations that state a claim that is facially plausible are

sufficient. Here, Plaintiff has pled that multiple entries (those of the three other

companies plus Plaintiff’s Newark entries) were liquidated duty-free, at a number of

ports, for a number of years, and that a fifth set (Plaintiff’s Long Beach entries) was not

accorded the same treatment.

       Defendant argues that “a prior interpretive ruling cannot constitute a treatment.”

Id. at 10. This misses the mark because Plaintiff’s claim is about the treatment that was

afforded to other importers after the 2005 Ruling. Likewise, Defendant’s argument that

the 2005 Ruling was “affirmed” in 2015, id., is unavailing because Plaintiff’s claim is that

duty-free treatment of children’s bicycle seats came into being on or before

September 21, 2007 and ended on September 22, 2014. Notwithstanding either the

2005 or the 2015 Ruling, Plaintiff has pled sufficient facts to have the opportunity to

prove that a treatment existed for some period of time within that 10-year period.
Court No. 15-00135                                                                  Page 13

                         ii. Substantially Identical Transactions

       For the second element, “Plaintiff must prove that the subject entries . . . are

substantially identical transaction[s] to the previous treatment.” Kahrs Int’l, 33 CIT at

1354, 645 F. Supp. 2d at 1286 (citation omitted). Plaintiff details the exact nature of the

child bicycle seats it imports, and alleges that its “child bicycle seats are substantially

identical in all material aspects to those imported by Bell Sports, Todson Inc., and Brix

Child Safety Inc.,” the importers who received the treatment Plaintiff now claims. Compl.

¶ 57. Defendant does not contest this. Therefore, Plaintiff has pled sufficient facts to

plausibly raise a claim of substantial similarity.

                               iii. Modification of Treatment

       Regarding the third element, “Plaintiff must prove that Customs has made a

proposed interpretive ruling or decision that would have the effect of modifying the

previous treatment with respect to the entries in question.” Kahrs Int’l, 33 CIT at 1354,

645 F. Supp. 2d at 1286 (citation omitted). Plaintiff alleges that “[f]rom September 21,

2007 to September 22, 2014, Plaintiff was not given the same treatment as other

importers of child bicycle seats.” Compl. ¶ 52. Again, Defendant does not contest this

allegation. Accordingly, Plaintiff’s complaint contains sufficient allegations to plausibly

raise the claim that its entries were not accorded the benefit of that treatment.

                  iv. Violation of Notice and Comment Requirements

       As to the fourth element, “Plaintiff must demonstrate that the proposed

interpretive ruling or decision violated the notice and comment requirements of this

statute.” Kahrs Int’l, 33 CIT at 1354, 645 F. Supp. 2d at 1286 (citation omitted).
Court No. 15-00135                                                                 Page 14

The notice and comment requirement is triggered whenever Customs issues

“interpretive rulings, ruling letters, internal advice memoranda, protest review decisions,

or decisions that are the functional equivalent of interpretive rulings or decisions.” Id.,

33 CIT at 1353, 645 F. Supp. 2d at 1285. Neither party specifically addresses this

element in their memoranda on the motion to dismiss. And although Plaintiff’s complaint

is not a paragon of clarity, Count 3 contains sufficient factual allegations to permit the

court to infer that Plaintiff’s Long Beach entries, which occurred during the existence of

the alleged treatment, were treated differently, without the benefit of the notice and

comment process as required by 19 C.F.R. § 177.12(c)(2). See Compl. ¶¶ 72-74.

       Taking Plaintiff’s claims as true and drawing all reasonable inferences in

Plaintiff’s favor, the court concludes that Plaintiff’s complaint contains sufficient factual

allegations to entitle it to proceed to the court’s consideration of the merits of Count 3.

It remains to be seen whether Plaintiff can prove the existence of a treatment under

19 U.S.C § 1625(c).

       Accordingly, it is hereby

       ORDERED that Defendant’s motion to dismiss Counts 2 and 3 of Plaintiff’s

complaint is denied; it is further

       ORDERED that Defendant shall file its answer to Plaintiff’s complaint on or

before November 7, 2017; and it is further
Court No. 15-00135                                                              Page 15

        ORDERED that the parties shall file a proposed scheduling order for the taking of

discovery and the disposition of this action on the merits on or before November 21,

2017.

                                                             /s/ Leo M. Gordon
                                                           Judge Leo M. Gordon

Dated: September 8, 2017
       New York, New York