United States Court of Appeals for the Federal Circuit

Federal Circuit Upholds Award of Attorney’s Fees in Customs Classification Case

International Customs Products Inc. fought in the Federal courts for over a decade when Customs increased duties on its imported “white sauce” product without revoking a binding ruling the company had. In most cases, the courts turned ICP’s appeals away because the company was without the tens of millions of dollars of increased duty whose payment was a prerequisite to invoking the Court of International Trade’s protest jurisdiction.

Only on one occasion was ICP able to pay the duties demanded and seek review of Customs’ actions. ICP prevailed in that case, and the Court of International Trade, finding the government’s position in litigation “not substantially justified”, ordered the government to pay ICPsome $772,000 under the Equal Access to Justice Act (EAJA).

The Court of Appeals for the Federal Circuit has now upheld that award. In International Custom Products Inc. v. United States, No. 2016-1024 (December 15, 2016), the appellate court agreed that the government’s position in litigation was not “substantially justified”, and that it should be forced to pay ICP’s attorney fees.

The Court held that it was harmless error for the CIT to invoke a standard for determining whether the government’s position was “substantially justified”, which the Supreme Court had set aside, nothing that the rejected standard was more demanding than the correct one, and that the CIT had in fact applied the correct standard in making the attorney’s fee award. Second, the Court held that, while the fact the government’s case might have survived a motion for summary judgment may be taken into account in a fee application, merely surviving such a motion is not dispositive proof that the government’s test was “substantially justified”. The government might survive a summary judgment motion at an early stage of the case, the Court noted, simply because its adversary was not in possession of all relevant facts.

Finally, the Court rejected a government argument that it was reasonable for Customs officials to issue a Form 29 Notice of Action increasing ICP’s duties, since they did not know whether that Form constituted a ruling. The Court noted that the decision to increase duties was not based on that notice, but on deliberations occurring before the notice was issued, in which Customs officials acknowledged that there was a “notice and comment” procedure for revoking or modifying rulings, but they simply decided to act in disregard of it.