January, 2018

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Exhaustion of Administrative Remedies

Mark K. Neville, Jr.

An inescapable fact of customs and trade law as practiced in the United States is that it is governed by administrative law principles. That means that those laws are administered by federal agencies and that there are certain procedures that prescribe the promulgation of regulations, issuance of rulings and other agency actions. Those principles apply in a general way to all agencies at the federal as well as at state and municipal levels.

In other words, US Customs and Border Protection and the other agencies involved, principally the Department of Commerce and the International Trade Commission, cannot “make it up” as they go along.

But equally important to recognize is the fact that importer or other private sector party cannot simply send a letter or take other action at the time and manner of its choosing. Instead, the body of those rules and regulations will govern the actions of the private sector in its dealings with the agency in a choreographed process.

In trade and customs matters, the statutory frame is codified at Title 19, and the body of regulations promulgated to implement that statutory regime is contained at Title 19 of the Code of Federal Regulations.1 Taken together, the two comprise the laws that govern the interactions of importers and other interested parties, such as customhouse brokers, sureties and foreign shippers and the agencies.

To illustrate, the statute and regulations on the filing and disposition of protests, 19 USC §§ 1514-1515 and 19 CFR Part 174, regulate the conduct of importer and CBP alike. The procedures set forth must be followed if an importer or other interested party wishes to contest the agency decisions.

Exhaustion of Remedies

One of the central features of any administrative law is the doctrine of the “exhaustion of remedies,” which, as a general proposition, holds that a litigant cannot gain access to judicial review unless it has first pursued and completed all levels of review at the administrative agency level.

The doctrine has been applied by Congress to trade and customs matters. The statutory basis is Section 301 of the Customs Courts Act of 1980.2

Simply put, the exhaustion requirement holds that an interested party must raise all relevant arguments at the appropriate time in the proceeding.

Exhaustion of Remedies: Customs

Again referring to the filing of protests, Congress has installed a process that sets forth an exhaustion of remedies in most customs cases. Somewhat curiously, the stated exhaustion of remedy predicate for post-protest denial cases is simply the payment of all duties and fees,

A civil action contesting the denial of a protest under section 515 of the Tariff Act of 1930 may be commenced in the Court of International Trade only if all liquidated duties, charges, or exactions have been paid at the time the action is commenced.3

In actual fact, this is a subtle reference to the administrative process that takes the general form of the importer’s obligation to file a protest against most final decisions of CBP. That requires, first, that the agency decision in fact is final. “Finality” for these purposes is equated with liquidation of the entry.4 A protest filed before liquidation is invalid as is a protest filed more than 180 days after the date of liquidation.5

For the garden variety trade or customs case, the litigant seeking judicial review at the CIT has participated fully at the agency level and has “exhausted all of its remedies” there.6 In other words, the issue would be ripe for judicial review at the CIT if the importer has field a valid protest and has paid all duties and fees.7

We have written about this notion of exhaustion of remedies in the context of a penalty enforcement action at the CIT8 and we saw that CBP will not be permitted to raise alternative levels of culpability for the importer’s conduct for the first time at the CIT. The thrust of that customs law decision is that the goose-gander rule is in effect, insofar as the government is held to the same standard as the private party litigant. Do not be confused with the de novo standard of review by the CIT for these customs matters.9

Let’s take a simple case--the CIT review of a denied protest, e.g., for the tariff classification of an imported article. Either party may raise alternative tariff classification claims for the first time at the CIT, and this is done routinely. The statute allows for “new grounds” to be raised if they pertain to the same merchandise and is related to the same decision that was contested in the protest.10 The party may not raise a claim beyond tariff classification if that had not the only issue that had been raised in the protest. For example, if a protest were filed against the tariff classification of an imported article that would not permit a review of customs valuation at the CIT.

Exhaustion of Remedies: Trade Cases

We have a recent trade remedy law decision, Boomerang Tube LLC v. United States,11 this at the appellate court, which reinforces this same general proposition. In fact it highlights the significant vitality of the doctrine, the application of which will mandate full briefing at the administrative stage. Failure to do so will preclude CIT review of that issue. We should emphasize that there is a different jurisdictional route to the CIT for antidumping and countervailing duty cases, a different standard of review and a separate and distinct expression of exhaustion of remedies.

Jurisdiction at the CIT to review final determinations of Commerce or the ITC in these cases will lie under 28 USC §§ 1581 (c) and 2636 (c). The standard of review is “substantial evidence on the record.”12

As for the “exhaustion or remedies” standard Congress did not specifically address these trade cases but more generally mandated that

In any civil action not specified in this section, the Court of International Trade shall, where appropriate, require the exhaustion of administrative remedies.

By default, then, Congress applied a broad exhaustion of remedies standard and the “where appropriate” phrase signifies a discretionary element.

In the Boomerang case review at the CIT was sought by the domestic petitioners who had alleged that there was dumping of oil country tubular goods (OCTG) by a Saudi steel company. Their petition had led to an investigation by Commerce and the ITC, and a preliminary dumping margin of 2.69% was found. However, a recalculation to account for a “ministerial error” in Commerce’s original calculation led to a revised margin of 1.37%, which was held to be a de minimis level. The investigation was terminated by Commerce and an amended negative final determination was published.

As was its right, the petitioners sought CIT review and alleged an error by Commerce in arriving at a “constructed value” (CV) by using profit data generated in sales from the Saudi respondent company to a related distributor company in Colombia.13

In fact, the sole issue raised on appeal was whether Commerce erred in its use of the sales to the affiliated Colombian distributor to calculate CV profit wich, in turn led to a de minimis dumping margin. Plaintiffs argued that the sales to the Colombian distributor were actually merely intra-company transfers, not sales, and were, therefore, not an appropriate basis to construct CV profit. They argued that the two entities should be “collapsed”, i.e., treated as a single entity because of their relationship.

The defendant/interveners, i.e., the Saudi respondents at the administrative proceeding, countered that plaintiffs failed to exhaust their administrative remedies with respect to this argument because it was not made during the dumping investigation and was raised for the first time on appeal before the CIT.

Citing to a 2008 Federal Circuit decision, the CIT stated the applicable standard for exhaustion of remedies

Simple fairness to those who are engaged in the tasks of administration, and to litigants, requires as a general rule that courts not topple over administrative decisions unless the administrative body not only has erred but has erred against objection made at the time appropriate under its practice.14

Nonetheless, noting that the doctrine was a matter of the court’s discretion, the CIT held that the fact that the data on the sales to the Colombian affiliate had been submitted into the record was not a sufficient trigger to have caused the petitioners to have briefed the issue at the Commerce proceeding. The following quotation is important to our discussion:

Denying relief on exhaustion grounds would require the court to conclude that plaintiffs should have predicted that Commerce might accept … proposal to use sales by [Saudi respondents] to Colombia to calculate CV profit and should have raised, in their case briefs, potential arguments against that possibility. The court declines to require such speculation. The court concludes, instead, that petitioners did not have a full and fair opportunity during the investigation to challenge the Department’s method of determining CV profit. Therefore, the court adjudicates on the merits the claims of all plaintiffs in this litigation.

The CIT proceeded to hold in favor of the government, which prompted an appeal to the Federal Circuit by the losing petitioners.

On appeal, the petitioners renewed their argument on collapsing the entities. For their part, the government and the respondents both argued that the case should have been dismissed on exhaustion of remedies grounds.

On appeal, the Federal Circuit vacated and remanded. It expressed the standard for exhaustion of remedies, noting that

We review a decision of the Trade Court on whether to require exhaustion in a particular case for abuse of discretion. See Corus Staal BV v. United States, 502 F.3d 1370, 1381 (Fed. Cir. 2007). Thus, we will reverse only if the Trade Court erred in interpreting the law, exercised its judgment on clearly erroneous findings of material fact, or made an irrational judgment in weighing the relevant factors.

Further, the appellate court placed the matter of “discretion” within context

We have explained that this statutory mandate “indicates a congressional intent that, absent a strong contrary reason, the court should insist that parties exhaust their remedies before the pertinent administrative agencies.15

In the event, the appellate court concluded that the CIT had been wrong, and should never have proceeded to review the case on the merits. Instead, the case should have been dismissed for a failure by plaintiffs to exhaust administrative remedies

The Trade Court’s decision constitutes an abuse of discretion for two reasons. First, the decision is legally erroneous to the extent it stands for the proposition that Commerce must expressly notify in- terested parties anytime it intends to change its methodology be- tween its preliminary and final determinations, despite the inclusion of the relevant data in the record and the advancement of arguments related to that data before Commerce. There is no support for such a requirement.

Second, the decision is based on a clearly erroneous finding of material fact that the parties did not have an opportunity to raise their single entity objection to using the Colombian transactional data before Commerce. It is undisputed that the data regarding [respondent] JESCO’s transactions with the affiliated distributor were in the re- cord prior to Commerce’s preliminary determination. At that point, [petitioners] U.S. Steel and Boomerang either knew or should have known that Commerce may consider those data during its calculations, especially given that the basis of CV profit was at issue.

The court even noted that the rebuttal brief filed by one of the petitioners had recognized the possibility of use of the Colombian sale data and had objected to it but had failed to raise the issue of the validity of such a sale and the “collapsing” of the entities.

Importance of the Boomerang Decision

We should note that, at a remove, the appellate court reached the same conclusion as the CIT—the petitioners still lose and the Commerce determination still stands. On the other hand, the fact that the court felt constrained to vacate the CIT judgment and remand the matter is a sign that the Federal Circuit feels quite concerned about the proper exercise of trial court discretion on this notion of exhaustion of remedies.

In a “you snooze, you lose” sense, parties to administrative proceedings are on notice that if they fail to anticipate and thus respond to the possibility of use being made of data submitted into the record at the suggestion of an opponent they lose the chance to contest that issue later. While the use by the agency may not be definite at the time due for the response, the mere fact that it is in the record and that the opponent is advocating for its use should prompt a counter argument that is thorough, vigorous and, above all, on the record.

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1. To be sure, there are additional resources, published by CBP that are followed by CBP and importers as well, such as the body of administrative rulings on CBP’s CROSS system, its series of Informed Compliance Publications, its various Forms and Instructions for completion and various Directives, all of which amplify the statute and the regulations.

2. 28 USC § 2637.

3. 28 USC § 2637(a).

4. Pursuant to either 19 USC § 1500 or § 1504.

5. See, e.g., Mazak Corp. v. United States, 659 F. Supp. 2d 1352 (CIT 2009) (protests filed one day late were untimely). Note that this protocol for protests was strictly administered by CBP and the reviewing courts. As an example, the repealed 19 USC 1520 (c) formerly provided a route for a request for reliquidation to correct clerical errors or mistakes a fact, with its expanded timeframe of one-year from date of liquidation was strictly construed so as to preclude review where an importer had not timely protested a mistake of law. See, e.g., Gulfstream Aerospace v. United States, 981 F. Supp. 2d 654 (CIT 1997).

6. For more information on litigation at the CIT see the recent discussion, Nevile, “Summary Judgment at the CIT,” 28 JOIT (Nov. 2017)

7. One aspect of this scheme is that if a matter has the potential to be protested once finality is attached with liquidation of the entry, the courts will require that the matter be protested and, once the protest is denied, the CIT case is initiated pursuant to 28 USC § 1581 (a). The courts will not allow the plaintiff earlier access to CIT review under 28 USC § 1581 (i), which provides for residual jurisdiction of the CIT. See, e.g., Hutchison Quality Furniture, Inc. v. United States, 71 F. Supp. 3d 1375, 1379 (CIT 2015), aff’d, Slip Op. 15-1900 (Fed. Cir. 2016).

8. Neville, “CBP Is Held to Its Administrative Position,” 27 JOIT 23 (Sept. 2016).

9. Pursuant to 28 USC § 2640(a)(1) (the court “make[s] its determination upon the basis of the record made before the court,” in “[c]ivil actions contesting the denial of a protest under [19 U.S.C. § 1515]).

10. 28 USC § 2838.

11. Appeal No. 2016-1554 (Fed. Cir. 2017), rev’g Boomerang Tube LLC v. United States, 125 F. Supp. 3d 1357 (Ct. Int’l Trade 2015).

12. The court shall hold unlawful any determination, finding, or conclusion found . . . to be unsupported by substantial evidence on the record, or otherwise not in accordance with law. 19 USC § 1516a(b)(1)(B)(i).

13. In calculating normal value, Commerce concluded that the Saudi producer had no viable home market sales, because its home market sales either failed the arm’s length test or were made below cost of production. Commerce determined to construct normal value under 19 USC §1677b(e)(2)(B)(iii), which provides for using “any other reasonable method.” Commerce calculated a profit value for the Saudi producer’s constructed value.

14. Mittal Steel Point Lisas Ltd. v. United States, 548 F.3d 1375, 1383-84 (Fed. Cir. 2008) (citation omitted).

15. Citations omitted.

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