United States Shoe Corp. v. United States

MUSGRAVE, Judge,

concurring.

I concur in the opinion that the Harbor Maintenance Revenue Act (the “Act”) is unconstitutional as it applies to exports and that the plaintiff U.S. Shoe is entitled to the remedy it requests, namely a refund of export taxes going back two years from the time it filed its complaint. Nevertheless, I offer some additional comments addressing the jurisdictional issue and the prayers of certain amici for a full refund of all taxes illegally collected from them since the implementation of the Act. 1 In my view, the manifestly inadequate administrative protest procedure under 28 U.S.C. § 1581 (a) is a further reason that 28 U.S.C. § 1581 (i) jurisdiction arises; moreover, complainants are entitled to a restitution of all taxes heretofore exacted under the Act in violation of the Export Clause of the United States Constitution. *422 2 This latter position is compelled by the Fifth Amendment Due Process Clause enjoining the deprivation of “life, liberty, or property, without due process of law.”

I

As an initial matter, recent opinions of the Court of Appeals for the Federal Circuit and this Court have ruled unambiguously that a decision by the Customs Service (“Customs”) is a condition precedent for section 1581(a) jurisdiction to arise. Mitsubishi Electronics of America, Inc. v. U.S., 44 F.3d 973 (Fed.Cir.1994); Carnival Cruise Lines v. U.S., 18 CIT -, 866 F.Supp. 1437 (1994). As the Court’s opinion makes abundantly clear, there is no decision involved in Customs’ collection of these unconstitutional taxes because Customs lacks discretion in the performance of its delegated ministerial duties. In addition to this reason, however, there is a further justification for the Court to invoke its section 1581(i) jurisdiction in this case: requiring plaintiffs to pursue a remedy under the protest procedures mandated by section 1581(a) would oblige them to follow a manifestly inadequate and utterly futile procedure.

Certain amici argue that a party could presumably request a refund as set forth in 19 C.F.R. §§ 24.24 (e)(5) or 24.73, obtain a denial of refund from Customs, and then protest that decision of Customs to deny the refund by way of the administrative protest process prescribed by 19 U.S.C. §§ 1514 and 1515. According to these amici, the Court could dismiss as not ripe for adjudication those actions which were filed prior to Customs denying a refund request, but instead should waive exhaustion of administrative remedial procedures and assert jurisdiction under section 1581(i), as such procedures are inadequate for the type of relief sought. (Br. of Amici Curiae Aris-Isotoner, et al., at 14-22.) Plaintiff and nearly all amici argue that the available administrative protest remedy set forth in 19 U.S.C. §§ 1514 and 1515 is futile and manifestly inadequate under the circumstances. The ultimate issue presented by such arguments is whether administrative remedies set forth by statute and regulations are appropriate when a party seeks a refund of payments mandated by an act of Congress. by challenging such act as unconstitutional.

The administrative remedial procedure as it applies to refund requests is clearly not meaningful or adequate under the given circumstances. See generally McCarthy v. Madigan, 503 U.S. 140, 144-149 , 112 S.Ct. 1081, 1085-89 , 117 L.Ed.2d 291 (1992) (explaining circumstances in which administrative remedies need not be exhausted); and Conoco v. Foreign Trade Zones Board, 18 F.3d 1581 (Fed.Cir.1994) (holding section 1581(a) jurisdiction inappropriate where it is futile or manifestly inadequate). Most importantly, as the Court’s opinion makes clear, Customs does not have authority to refund Tax payments or otherwise grant effective relief for constitutional claims. It is well settled that an administrative agency lacks the authority to declare an act of Congress unconstitutional. See Califano v. Sanders, 430 U.S. 99, 109 , 97 S.Ct. 980, 986 , 51 L.Ed.2d 192 (1977) (“Constitutional questions obviously are unsuited to resolution in administrative hearing procedures and, therefore, access to the courts is essential to the decision of such questions.”). Hence, under the circumstances of this case Customs is compelled to deny any administrative refund claim, making a request for refund a futile act.

Moreover, Customs has predetermined the issue before it. As plaintiff points out, Customs’ denial of protests challenging the constitutionality of the Harbor Maintenance Tax ( 26 U.S.C. §§ 4461 and 4462, hereinafter the “Tax”) is a foregone conclusion. (Pl.’s Mem. Supp.Summ.J. at 15-16.) Customs routinely denies all of the protests it receives in connection with Tax payments. The denial is a form letter simply asserting in one sentence that the levy is not an unconstitutional tax but a statutorily mandated user fee. 3 Such routine denial demonstrates that filing refund requests with Customs on grounds of unconstitutionality is clearly a futile act.

*423 Lastly, requiring a party to file for refunds may unduly prejudice that party. “[Pjreju-dice may result, for example, from an unreasonable or indefinite timeframe for administrative action.” McCarthy, 503 U.S. at 147 , 112 S.Ct. at 1087 . The administrative refund processes set forth under 19 C.F.R. §§ 24.24 (e)(5) and 24.73 do not provide a time frame for the resolution of a claim for refund. This Court has recently deemed it appropriate to waive exhaustion of administrative remedies because they were not clearly delineated and because they set up indefinite timetables. B-West Imports v. United States, 19 CIT -, 880 F.Supp. 853 (1995). The administrative refund procedures are similarly indefinite and are therefore inadequate under the circumstances of the present case.

Before this Court may exercise jurisdiction over this matter by way of section 1581(i), there must be terms within the language of that section which cover the issues plaintiff brings before the Court. Conoco, 18 F.3d at 1588-89. Defendant argues that section 1581(i) by its own terms fails to provide a jurisdictional basis for a constitutional challenge to the Tax because plaintiffs claims are based upon payments associated with exports, while the express terms of subsections 1581(i)(l) and (2) apply only to imports. (Defs.Mem. Supp. Summ. J. at 24.)

The terms of section 1581(i) make clear that the Court has jurisdiction over any civil action that arises out of any United States law providing for the matters set forth in the statute. Defendant’s reading of section 1581(i) would eliminate that all-encompassing term and in effect grant the Court jurisdiction only over the specific matters set forth in subsections 1581(i)(l)-(4), but not the laws dealing with those matters. Such an interpretation would mean that this Court would have jurisdiction over the Tax as it applies to imports, the district courts would have jurisdiction over the Tax as it applies to exports, and it is uncertain as to which court would have jurisdiction over the Tax as it applies to, e.g., passenger services.

As the opinion of the Court points out, Congress did not intend for the district courts to exercise jurisdiction over the Tax. The statutory language of 26 U.S.C. § 4462 (f)(2) and its accompanying legislative history indicate Congress’ clearly stated intention that this Court have jurisdiction over the Tax. Furthermore, “[Sjection 1581(i) was intended to give the Court of International Trade broad residual authority over civil actions arising out of federal statutes governing import transactions and to eliminate the confusion over whether jurisdiction lay in the Court of International Trade or the district courts.” Conoco, 18 F.3d at 1588 (emphasis added). Thus it was the intent of Congress for this Court to exercise jurisdiction over the entire Tax, not just those portions of the Tax that are covered under the specific subsections 1581(i)(1)-(4).

The terms of section 1581(i) embrace the Tax. This Court has found that the Tax is a law which provides for revenues from imports and exports, and for the administration and enforcement with respect to those revenues including the protest process. Therefore, subsections 1581(i)(l) and (4) provide this Court with jurisdiction over the Tax.

In sum, Customs has not made a decision with respect to the Tax upon which a valid or meaningful protest may be predicated. Defendant’s arguments simply ignore that necessary prerequisite to the protest process set forth under 19 U.S.C. §§ 1514 and 1515. Moreover, under the circumstances of this case, it is futile and manifestly inadequate to await a decision by Customs with respect to an administrative refund request. As required, the terms of section 1581(i) cover the issues that plaintiff brings before the Court. The Court’s jurisdiction is therefore properly asserted over this matter by way of section 1581(i). The Court is authorized by statute to exercise discretion in requiring exhaustion of administrative remedies. 28 U.S.C. § 2637 (d). Having found jurisdiction under section 1581(i), pursuant to this Court’s discretionary powers under 28 U.S.C. § 2637 (d), and for the reasons previously discussed, it is inappropriate to require exhaustion of any administrative remedy when, as in this case, a party requests a refund by challenging the constitutionality of an act under which payment was made.

*424 II

It is the duty of this Court to exercise judicial review over Congressional acts within its jurisdiction, and “[sjhould Congress, in the execution of its powers, adopt measures which are prohibited by the Constitution ... it would become the painful duty of this tribunal ... to say, that such an act was not the law of the land.” M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 423 , 4 L.Ed. 579 (1819). As the opinion of the Court details, there is no question that the Act violates the Export Clause. Insofar as the Act therefore is not the law of the land, it is void ab initio: “an invalid exercise of the power of Congress ... [is] as inoperative as if it had never been passed, for an unconstitutional act is not a law, and can neither confer a right or immunity....” Chicago, I. & L.R. Co. v. Hackett, 228 U.S. 559, 566 , 33 S.Ct. 581, 584 , 57 L.Ed. 966 (1913). When the invalid act is the federal government’s unconstitutional exaction of taxes, taxpayers’ rights under the Due Process Clause of the Fifth Amendment are implicated. “Thus, if a plaintiff seeks the return of money taken by the government in reliance on an unconstitutional tax law, the court ignores the tax law, finds the taking of the property therefore wrongful, and provides a remedy.” Reynoldsville Casket Co. v. Hyde, — U.S. -, -, 115 S.Ct. 1745, 1752 , 131 L.Ed.2d 820 (1995) (Scalia, J., concurring).

A tax refund is the only appropriate remedy for the government’s illegal collection of revenue under the Act. Because the tax violates the Export Clause, it was “beyond the [government’s] power to impose, ... [and the government has] no choice but to undo the unlawful deprivation by refunding the tax previously paid under duress, because allowing the [government] to collect these taxes by coercive means and not incur any obligation to pay them back ... would be in contravention of the [Due Process Clause].” McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Fla. Dept. of Business Regulation, 496 U.S. 18, 39 , 110 S.Ct. 2238, 2251 , 110 L.Ed.2d 17 (1990). Yet an attempt to collect all moneys illegally exacted since the tax’s incipience in 1987 ostensibly conflicts with the two-year statute of limitations applicable generally to claims brought under 28 U.S.C. § 1581 (i). Due to the peculiar circumstances of this case, however, enforcing the statute of limitations would im-permissibly infringe constitutional rights guaranteed under the Fifth Amendment Due Process Clause.

The United States Supreme Court has held that “[a] constitutional claim can become time-barred just as any other claim can-Nothing in the Constitution requires otherwise.” Block v. North Dakota, 461 U.S. 273, 292 , 103 S.Ct. 1811, 1822 , 75 L.Ed.2d 840 (1983). While valid claims based upon unconstitutional acts by the federal government may at some time become stale or deemed waived, an attempt, as here, at interposing a very short statute of limitations runs afoul of due process and flaunts the sovereign’s role as, among other things, protector of rights of its citizens, from whom this government, almost uniquely when it was created, acquired all of its powers. And here, the legislative history reflects that the drafters of the Act were abundantly aware of the constitutional infirmity of the Act; this being true, enforcing the foreshortened statute of limitations is to reward the perpetration of an overtly unconstitutional action.

The Bill of Rights incorporates those indefeasible rights which the citizens decline to surrender to the sovereign, and it is this very feature of our constitutional democracy — that the government is empowered only to the extent that citizens surrender their rights— which distinguishes it from other political systems in which people derive their rights only from the state. Although the federal government enjoys broad immunity, this immunity does not extend to unconstitutional behavior, and a statute of limitations that operates in violation of the Due Process Clause constitutes an invalid exercise of the power of Congress which does not immunize the government from suit. 4

*425 [T]he exercise by Congress of its control over jurisdiction is subject to compliance with at least the requirements of the Fifth Amendment. That is to say, while Congress has the undoubted power to give, withhold, and restrict the jurisdiction of courts other than the Supreme Court, it must not so exercise that power as to deprive any person of life, liberty, or property without due process of law or to take private property without just compensation. 5

Battaglia v. General Motors Corp., 169 F.2d 254, 257 (2d Cir.1948). “[T]o hold otherwise would be to create the possibility that Congress could act unconstitutionally and then attempt to shield its action from review by virtue of sovereign immunity.” Bartlett v. Bowen, 816 F.2d 695, 708 (D.C.Cir.1987). Thus, it is to no avail that the interlocutor points to the jurisdictional nature of the statute of limitations presently under consideration. Moreover, “The courts ... have recognized a principle that the constitutional guarantee of an independent judiciary limits the legislature in the exercise of its power to regulate court jurisdiction.” Bartlett, 816 F.2d at 705 . The judicial branch must not countenance the disenfranchisement of democratic constitutional rights in deference to the royal cloak of sovereign immunity. To do so would be to abrogate the judiciary’s proper role as protector and final arbiter of constitutional rights, a role implicit in the separation of powers established by our constitutional scheme and made decisively explicit in Marburg v. Madison, 5 U.S. (1 Cranch) 137 , 2 L.Ed. 60 (1803).

The Supreme Court has recognized that procedural requirements in tax refund eases must satisfy all the provisions of the Constitution. Discussing procedural obstacles which might bar a refund of state taxes collected in violation of the Constitution, the Court declared, “Depending upon whether or not this independent rule satisfied other provisions of the Constitution, it could independently bar the taxpayers’ refund claim.” Hyde , — U.S. at -, 115 S.Ct. at 1750 (emphasis added). In this vein the Court has indicated that states may enforce “relatively short statutes of limitation applicable to such actions.” McKesson, 496 U.S. at 45 , 110 S.Ct. at 2254 (citing Florida’s three-year statute of limitations for tax refund suits). Although states may promulgate statutes of limitations in connection with tax refund statutes, they are bound to provide substantive relief for revenue exacted in violation of the Constitution. A state’s post-deprivation tax refund regime must afford “an opportunity to contest the validity of the tax and a ‘clear and certain remedy’ designed to render the opportunity meaningful by preventing any permanent unlawful deprivation of property.” McKesson, 496 U.S. at 40 , 110 S.Ct. at 2252 (quoting Atchison, T. & S.F.R. Co. v. O’Connor, 223 U.S. 280, 285 , 32 S.Ct. 216, 217 , 56 L.Ed. 436 (1912)). Moreover, when a state places

a taxpayer under duress promptly to pay a tax when due and relegates him to a post-payment refund action in which he can challenge the tax’s legality, the Due Process Clause of the Fourteenth Amendment obligates the State to provide meaningful backward-looking relief to rectify any unconstitutional deprivation.

Id. at 31, 110 S.Ct. at 2247 (emphasis added).

In tax refund cases the Fifth Amendment Due Process Clause does not endow the federal government with the flexibility the states enjoy when fashioning schemes to redress unconstitutional exactions. The relevant state obligations under the Fourteenth Amendment Due Process Clause owe their flexible nature to principles of federalism and comity:

We have long recognized that principles of federalism and comity generally counsel *426 that courts should adopt a hands-off approach with respect to state tax administration. ... [T]his Court [has repeatedly] shown an aversion to federal interference with state tax administration_ The reluctance to interfere in state tax collection ■continued in McKesson, in which we confirmed that the States are afforded great flexibility in satisfying the requirements of due process in the field of taxation.

National Private Truck Council v. Oklahoma Tax Comm’n, — U.S. -, ——, 115 5.Ct. 2351, 2354, 132 L.Ed.2d 509 (1995) (citation omitted). In the instant case, there exists no question of “comity” between the federal government and a state, and under McKesson and its progeny, a two-year statute of limitations in tax refund eases may well be unconstitutional at the state level. Although there is no precedent directly on point, it is evident that in this case, the more stringent due process obligations incumbent on the federal government entail that enforcing the two-year statute of limitations would infringe Fifth Amendment rights by, inter alia, failing “to provide meaningful- backward-looking relief to rectify any unconstitutional deprivation.”

There is no need to speculate on a constitutionally permissible term for a statute of limitations in this type of case. Having found the statute of limitations inapplicable, it is my opinion that the imperatives of due process require a full refund back to the date of the Act’s implementation, ie., 1987 (the bulk of unconstitutional exactions appear to have occurred subsequent to the increase of the tax from .04% to .125%, in 1991). Although the government has a legitimate interest in orderly and predictable tax administration, Justice O’Connor explained that “McKesson makes plain that equitable considerations are of limited significance once a constitutional violation is found.” American Trucking Ass’ns v. Smith, 496 U.S. 167, 184 , 110 S.Ct. 2323, 2334 , 110 L.Ed.2d 148 (1990). Any misplaced concern for visiting hardship upon the government by requiring a complete refund of the unconstitutionally exacted taxes is dispelled by the fact that at the end of fiscal year 1994, the fund generated by the Act contained a $453 million surplus, 6 while the total sums collected since the Act’s inception amounted to $2.7 billion, $700 million of which was derived from unconstitutional export taxes. (Def s.Mem.Supp.Summ.J. at 5). Furthermore, the fund’s cumulative surplus is expected to balloon to nearly $1. 7 billion by the end of fiscal year 1999.7 Under .the circumstances, restitution of all unconstitutional exactions collected since the Act’s implementation is appropriate where such relief is requested.

. E.g., "Amici respectfully join in plaintiff’s request that this Court find the HMT unconstitutional, strike it down, and direct pursuant to the power granted it under 28 U.S.C. § 1585 that all HMT payments unlawfully collected be refunded, together with such other and further relief as may be appropriate.” (Amici Texaco et al.'s Mem.Supp.Summ.J. at 2) (emphasis added).

. The other jurists on this panel are not in accord with the comments addressing the remedy issue.

. Declaration of Charles Davies, Director — User Fee Task Force, Headquarters Office of Inspection and Control at 6, and attachments.

. See Akhil R. Amar, Of Sovereignty and Federalism, 96 Yale L.J. 1425 , 1427 (1987) ("[W]henever a government entity transgresses the limits of its delegation [of powers] by acting ultra vires, it ceases to act in the name of the sovereign, and *425 surrenders any derivative “sovereign” immunity it might otherwise possess.”).

. See also International Tel. & Tel. Corp. v. Alexander, 396 F.Supp. 1150 , 1163 n. 31 (D.Del.1975) (discussing federal tax protest and remedy statutes and declaring, "As previously noted, both statutes are jurisdictional and are within the power of Congress to enact pursuant either to Art. Ill, § 1 of the Constitution or the sovereign immunity of the federal government.... These respective sources of power, however, cannot be utilized by Congress to shield from judicial review governmental action violative of constitutional guarantees.”).

. Dept, of the Treasury, Financial Management Service, Funds Account Branch, Harbor Maintenance Trust Fund Income Statement and Balance Sheet, 10/1/93-9/30/94.

. Army Corps of Engineers Internal Briefing Outline (Feb. 2, 1995).