CIT Considers Negligent Misclassification and the Exercise of Reasonable Care
In U.S. v. Optrex America, Inc., the Court of International Trade considered the issue of 1592 negligence and the exercise of reasonable care, and concluded that there were genuine issues of material fact that required further adjudication.
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From October 1997 to June 1999, Optrex imported certain liquid crystal display ("LCD") articles into the U.S. Subsequently, Customs claimed that Optrex had negligently misclassified the LCDs under HTS 8531, instead of under HTS 9013, in violation of the Federal Circuit's decision in Sharp Microelecs. Tech., Inc. v. U.S (1997).
The CIT has already ruled in favor of the government on the classification of the LCDs. (CIT Slip Op. 06-26). This current case concerns whether Optrex had acted with negligence.
The CIT stated that the importer bears the burden of showing that it did not act negligently by demonstrating that it used "reasonable care" with respect to the entry of its merchandise. Optrex offered several arguments to support its claim that it had acted with reasonable care.
First, it argued that it had consulted with "Customs professionals," including a licensed customs broker, in-house technical experts, and legal counsel. The Court found that conflicting testimony with respect to the Company's consultations with its customs broker and in-house technical experts placed this argument in dispute which would be best tested through cross examination.
There was no dispute, however, regarding Optrex having consulted its attorney. In this regard, the Court commented that consulting a Customs professional is not a safe harbor for importers, and further that while "consultation with an attorney is evidence of compliance; it is not compliance in itself. Other evidence maycontradict that indicia of compliance." In this instance, the Court noted that there was "evidence that at least some entries at issue were classified contrary to the legal advice given."
Secondly, Optrex argued that it cooperated with Customs to establish the correct classification, permitting Customs to review their product catalogs, part number keys, and spreadsheets.
The Court found that this argument was weakened by the testimony of an employee that she could not recall whether she consulted with Customs, and that she never read any Customs rulings concerning the same or similar merchandise.
The Court also pointed out that the importer maintained import accrual accounts that "arguably suggest[ed] that the importer knew that certain LCD products were properly classifiable under a higher duty rate" Noting that this was not an unusual accounting practice, the CIT determined that it could not "decide its significance on summary judgment."
Thirdly, Optrex argued that it attempted to comply with Customs laws, while Customs failed to furnish Optrex with adequate guidance on classifying the subject merchandise, as it was obligated under the Mod Act to do, and that Customs itself failed to consistently classify the imported LCD products.
The Government responded that the "inconsistent" rulings cited by Optrex did not involve the subject merchandise, and that it had provided specific guidance to Optrex as had Optrex's attorney.
The Court found that the government's argument had "significant support in the record", and that "Precisely, because the classification of LCD products was such a complex area, Optrex should have sought a ruling from Customs if it desired certainty."
Finally, Optrex argued that "professional disagreement" about the classification of merchandise is not a breach of "reasonable care" and that it had followed its "Decision Tree" policy.
The Government responded that it had changed its classification with respect to LCD modules, and not with respect to LCD panels, and there was accordingly, no "professional disagreement."
With respect to the "Decision Tree", the CIT found that it was problematic that the decision tree was formulated after the entries of the subject merchandise were made, and that counsel informed Optrex that the 'decision tree' was intended to satisfy both Customs and Optrex in the pursuit of proper classification.
The CIT's review of the total record established that there were genuine issues of material fact concerning Optrex's claim that it acted with reasonable care, and the Defendant's motion for summary judgment was denied.
CIT Slip Op. 06-73 (dated 05/17/06) available at http://www.cit.uscourts.gov/slip_op/Slip_op06/06-73.pdf
CIT Slip Op. 06-26 (dated 02/27/06) available at http://www.cit.uscourts.gov/slip_op/Slip_op06/06-26.pdf