CAFC Questions CIT's 'Wild Goose Chase' in Oral Argument on First Sale Valuation
The U.S. Court of Appeals for the Federal Circuit during oral argument on Sept. 3 strongly questioned the U.S. in a customs case on whether cookware imports from Meyer Corp. qualify for first sale treatment. Judges Sharon Prost, Todd Hughes and Tiffany Cunningham questioned the government's defense of the Court of International Trade's decision to deny Meyer first sale valuation seemingly based on an adverse inference drawn against the company for its failure to submit its parent company's financial information (Meyer Corp. v. United States, Fed. Cir. # 23-1570).
Meyer's case initially revolved around a question raised by CIT about whether first sale valuation could ever be used for goods coming from non-market economies. The Federal Circuit found that CBP has no basis to consider a nation's NME status when deciding whether to grant first sale treatment, and sent the case back for consideration of the valuation of Meyer's shipments (see 2208110060).
In its second opinion, the trade court said the cookware imports don't qualify for first sale treatment due to the failure of Meyer's parent company, Meyer International Holdings, to submit financial information (see 2302090053).
At oral argument, the judges questioned the government's defense of this decision. Prost asked DOJ attorney Beverly Farrell about the fact that CIT drew a seemingly adverse inference against Meyer despite the fact that the U.S. never tried to get the holding company itself to give up its records. Farrell defended this move on the basis that the U.S. asked Meyer for the records.
Hughes sharply questioned Farrell about the government's position, in particular the trade court's failure to engage in any way with any of the evidence submitted by Meyer on the question of whether the first sale of the goods was conducted at arm's length with the buyer. The judge said the "problem with this whole case" is that the CIT judge didn't consider the evidence because he's on a "wild goose chance" for the holding company's financials because "he somehow thinks there's something nefarious going on here, without any proof that there's anything nefarious."
Farrell defended the trade court's ruling by claiming that the holding company's financial information could potentially reveal that Meyer is manipulating its costs to show that its first sale didn't recover the company's costs plus a profit. She said at the parent company there are "silos of people" potentially selling the same goods to different countries at varying costs. Farrell said the government would expect to find "manipulation" if the price of the goods were different across different countries since the costs would be the same.
Hughes questioned this point, claiming that it shouldn't matter if the prices are different so long as the company recovers its costs plus a profit. The judge faulted CIT for engaging in "speculation," noting that the record doesn't establish any theory of price manipulation on Meyer's part. "You're asking [Meyer] to disprove something that they don't think is true," Hughes said. Farrell responded that a lack of evidence is evidence, also taking note of the fact that purchase orders and proofs of purchase are missing from the record.
To open the case, John Peterson, counsel for Meyer, asked the court to remand the matter to "consider the evidence that was given" regarding whether the transaction was conducted at arm's length and consider the evidence regarding the "all cost plus a profits test." Peterson faulted CIT for failing to define the term "firm" in CBP's regulations. Hughes responded by saying that he doesn't think the trade court's ruling relied on this definition but rather saw the court reject Meyer's costs because the holding company's documents weren't provided.
Peterson said the holding company can't be the "firm" at issue since it doesn't have sales of goods of the same class or kind. Hughes said Peterson "shouldn't waste" his time "arguing about what the firm is, because I don't think that's what the error in his opinion is."