Petition for Writ of Certiorari — United States Shoe Corp. v. United States

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Rereme Court, U.S.

(1) FILE®

0212 21 FEB 1 9 2003

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IN THE

Supreme Court of the United States

UNITED STATES SHOE CoRP.,

Petitioner,

UNITED STATES OF AMERICA.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Federal Circuit

PETITION FOR WRIT OF CERTIORARI

Thomas C. Goldstein

Amy Howe

Laurence H. Tribe

(Counsel of Record)

John Bronsteen

Goldstein & Howe, P.C.

4607 Asbury PI., NW

Washington, DC 20016

Harvey A. Isaacs

Robert T. Stack

Tompkins & Davidson, LLP

1515 Broadway — 43rd Floor

New York, NY 10036

February 19, 2003

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 - WASHINGTON, D.C. 20001

Charles Fried

1575 Massachusetts Ave.

Cambridge, MA 02138

(617) 495-4621

James S. O'Kelly

Alan Goggins

Barnes, Richardson & Colburn

475 Park Avenue South

New York, NY 10016

QUESTIONS PRESENTED

i. Did Congress by statute waive the government’s im-

munity from the more than $700 million in interest owed to

more than 7500 exporters on refunds of the Harbor Mainte-

nance Tax, which this Court previously held in this case vio-

lates the Constitution’s Export Clause?

2. Is such a waiver unnecessary either because the gov-

ernment is required to pay interest under the Export Clause or

because it is at least required to return the more than $70 mil-

lion in profits it actually earned by investing the HMT pay-

ments, as this Court held in Henkels v. Sutherland, 271 U.S.

298 (1926)?

PARTIES TO THE PROCEEDINGS BELOW

The caption identifies the parties to the proceedings be-

low.

RULE 29.6 STATEMENT

Petitioner United States Shoe Corp. is a wholly owned

subsidiary of Luxottica U.S. Holding Corp., which in turn is a

wholly owned subsidiary of Luxottica Group S.p.A., Italy, a

publicly held corporation. On May 23, 1995, the assets of the

Footwear Division of United States Shoe Corp. were acquired

by Nine West Corporation, a publicly held corporation that

was subsequently acquired by Jones Apparel Group, Inc., a

publicly held corporation.

ili

TABLE OF CONTENTS

Pages

QUESTIONS PRESENTED ...............ccccccccssssccssssssssccccseeeee. i

PARTIES TO THE PROCEEDINGS BELOW. ..........0..00.0--. il

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PETITION FOR A WRIT OF CERTIORARI .......ccccccecceceeces l

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RELEVANT CONSTITUTIONAL, STATUTORY, AND

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STATEMENT OF THE CASE ........c.cscsecccssccssssscesscsesseasosess l

REASONS FOR GRANTING THE WRIT .........cccccccccceecees 10

I. Certiorari Should Be Granted In Light Of The

Importance Of The Federal Circuit’s Decision............... 11

If. Certiorari Should Be Granted Because The Federal

Circuit Failed To Give Effect To Congress’s Intent

To Waive The Government’s Immunity From

di chilek Cass aicesdccadidaisnasienkhaedshasiouss deka pdheedeniains sve 13

III. Certiorari Should Be Granted To Determine Whether

A Waiver Of The Government’s Immunity From

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TABLE OF AUTHORITIES

Cases

Ashwander v. Ternessee Valley Authority,

GPF Ue CRE Ul PR iii iatictimminnens hvechekebebmedenenith 20

Cyprus Amax Coal Co. v. United States,

205 F.3d 1369 (2000), cert. denied, 532 U.S. 1065

aE cs caichaehchbhcaaibienniinbsaigscatelinbedsahhialadilita lata 23

Daniels v. Williams,

EE A SOE Ce cnecokeiuihabiasicbieniantisiedthdacidbabanniinicaaniin 26

E. W. Scripps Co. v. United States,

2002 U.S. Dist. LEXIS 20283 (S.D. Ohio Sept. 16,

MD sacitcanintndaibcuhiiasnscibiciin ntekacmmnciatpasteiasedatinlaabis 24

Eastern Enterprises v. Apfel,

Fe Fcc MA EO Pe esnnninccccchadasisidsiiiemncctebecbelbanubilinted ae

English Evangelical Lutheran Church v. County of Los

Angeles,

ES PR AE OR isiininietincinedabiagediiniinniiniigaaamaniaadan 26

Ex parte Siebold,

OE ea hE 8 Ce vicki aniciticininsainennanindabeiinapiniglies 26

Fairbank v. United States,

SR SEB er aE Miinetcsesseiecsinciviananaciimenianan 3, 6, 22

Fuentes v. Shevin,

aE Te Br COG ia diethinicnichieetinneiiniailaadiiin 26

Henkels v. Sutherland,

FC Ge ee itinteictncninvniatciibaaaaeaes 4,11, 23

Humane Society of United States v. Clinton,

Be Ee Ee ee I R ceciictiinintevinstnsnisasinnneanicnaaion 17

Ikelionwu v. United States,

ee EE Aik stnsinsioninnciienasiinicsigninntgiel 24

Larson v. United States,

BEDE IO GES (CAL ZOD1) .ocsesccseecesisescichetsdeisorpecedstccedss, 24

Marbury v. Madison,

5 U.S. (1 Cranch) 137 (1880) .0...cccceccccceeceee. iittencinenoael

Reynoldsville Casket Co. v. Hyde,

POF Sy PO ER vicinsticticerseithadeeis eit 25

Swisher International v. United States,

205 F.3d 1358 (CAFC), cert. denied, 531 U.S. 1036

GN Mivieiielehineichttihteaatasieisad ceata gel ese Mere 7

United States v. $7,990.00,

BPD Fe OED COAG BG aa seniescsvictsecescvsescsereeesoces. 24

United States v. $30,006.25,

236 F.3d 610 (CA10 2000).............ccccccccscccoszesecseceeees... 24

United States v. $40,000,

1998 U.S. Dist. LEXIS 14649 (D.P.R. ig. | SG ee 24

United States v. $133,735.30,

Be Be FA Ce Foss cexsseceinsscdsraieereassounecc 24

United States v. $277,000,

OF FW ROPE CLAD FIGS) vovcciccvnsseessessereeccessesccsecs... 9, 24

United States v. $515,060.42,

Fe Coe OE CED WON i ceiiitite hicitibnti cn es 9, 24

United States v. American Bar Endowment,

BE Us TOR Ci satleitctbecthittiicaeitasinsbcsa ne 5a

United States v. Goodyear Tire & Rubber Co.,

Fe As Be Ce iiissiniscrrcrnitarcateicdeiscree 12

United States v. Hill,

PE BF ai EM sictuchininirrincopsiapiseiittpdeaiasansnecuc ce 12

United States v. IBM Corp.,

FE Cie Oe Ui i iitartisiinnstniskecdecrbicbect acs: 7, 21, 22

United States v. United States Shoe Corp.,

FE GD, PRRUUGGT) icrcvevnsicrrnninnniicssnssiirinricasiateisnted, passim

United States v. United States Shoe Corp.,

REP Cette POP ON OD ivssisctecvinconinsdacesieciesincescees 1, 10, 16, 25

errant. _

Webb’s Fabulous Pharmacies, Inc. v. Beckwith,

44D OB. 15S CD tiiscenctsticrttensainenicltiomminnan 25

Constitutional Provisions, Statutes, and Regulations

U7... COREE. GURU, "Whivessecinsunssvansesonaniaietiaialantinnsinl passim

3. Comat. ar. Ei GE: oe saisscbeciesbecdcnceuseniniseiiauntns passim

19 U.S.C.

SFP <nssvsaanescoveocenedinetieeegipntbenieauaeseeselesiuleirahaenneiialala 16, 17

BD ic csvinaseessenseesseseecarssgenentesaneeeeenanmiaiel passim

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BSROER 1) vnnsccosceseseseernssesnsenssencnnnebisesbeentnaiiainetgeiebenniale 15S

26 U.S.C.

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26 U.S.C.

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GE Ba nsis sicinsrsnininsitadiidiaicniskentnaennintandentdelaaineaitalansiaa at 13

INT Tiiieisiininteinitbinsiictnieinibbabebicieetins states as 4

28 U.S.C.

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Other Authorities

U.S. BIO, No. 00-482, JBM Corp. v. United States................ 7

64 Fed. Reg. 56,433 (Oct. 20, 1999) ..o..cccccccccccccccesceceececeeee.. 18

66 Fed. Reg.

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PETITION FOR A WRIT OF CERTIORARI

Petitioner United States Shoe Corp. respectfully petitions

for a writ of certiorari to review the judgment of the U.S.

Court of Appeals for the Federal Circuit in this case.

OPINIONS BELOW

The opinion of the U.S. Court of Appeals for the Federal

Circuit (Pet. App. la-12a) is published at 296 F.3d 1378. The

opinion of the U.S. Court of International Trade (Pet. App.

13a-19a) is published at 20 C.I.T. 206.

JURISDICTION

The U.S. Court of Appeals for the Federal Circuit denied

a timely petition for rehearing en banc (Pet. App. 114a-15a)

on October 22, 2002. The Chief Justice previously extended

the time to file this petition to and including February 19,

2003. This Court has jurisdiction under 28 U.S.C. 1254(1).

RELEVANT CONSTITUTIONAL,

STATUTORY, AND REGULATORY PROVISIONS

The relevant constitutional, statutory, and regulatory pro-

visions are reproduced in the appendix (at 130a-43a).

STATEMENT OF THE CASE

This petition presents the unfinished business of this

Court’s prior, unanimous ruling in this case that the Harbor

Maintenance Tax (HMT) violates the Constitution’s Export

Clause. United States v. United States Shoe Corp., 523 U.S.

360 (1998) [hereinafter U.S. Shoe [| (Pet. App. 102a-10a);

U.S. CONST. art. I, § 9, cl. 5. The Court of International

Trade on remand ordered the United States to refund the

HMT payments together with interest. That interest repre-

sents the considerable lost time-value of the deen that the

government first unconstitutionally exacted and later contin-

ued to hold. But, in an opinion that fails to follow either the

EMAIL MEN AT INNES oe aR

letter or the spirit of this Court’s prior ruling, the Federal Cir-

cuit reversed the award of interest.

The questions presented are important because this case

controls approximately 7500 claims pending administratively

or in the lower courts. The vast number of cases spans the

many years since the HMT was enacted in 1986, during

which the government has fought tooth and nail to delay —

and continues to this day to delay — refunding even the prin- |

cipal. The resultant amount of interest owing to exporters

that is at stake in this case is at least $700 million, and grow-

ing. The government itself has earned at least a $70 million

profit by investing the money that it unconstitutionally ex-

acted from exporters. Further, exclusive jurisdiction lies in

the Court of International Trade and subsequently the Federal

Circuit, so exporters have no other forum in which they can

pursue their claims to interest.

This Court should accordingly grant certiorari to decide

two questions:

First, did Congress waive the government’s immunity

from interest on HMT refunds? Petitioners urge that the an-

swer is “yes.” Congress comprehensively waived the gov-

ernment’s immunity from interest in numerous statutes gov-

erning refunds of both customs duties and taxes. One statute,

in particular, is plain. Congress provided that the HMT shall

be treated as “a customs duty” (26 U.S.C. 4462(f)(1)), a fact

that played a central role in this Court’s prior ruling that the

CIT has jurisdiction over the case (Pet. App. 105a-06a).

Congress specified, in turn, that refunds of customs duties

shall be paid “together with interest thereon.” 19 U.S.C.

1505(b). Even the government should concede that Section

1505 applies here, for that is the authority upon which it relies

in refunding the principal. Further, the government previ-

ously acknowiedged that it “is required to apply the rules and

principles of section [1505]” to the HMT because “section

[1505] is one of the customs laws which by Congressional

mandate applies” to the HMT. Pet. App. 14la (emphasis

added). The Federal Circuit’s holding that interest is nonethe-

less not available thus does not accord with the statutory text,

this Court’s prior decision in this case, or the government’s

Own practice.

Even if a convoluted course of statutory arguments could

be employed to conclude that Congress did not waive the

government’s immunity from interest and thus inadvertently

permitted the manifestly unjust outcome reached below, cer-

tiorari is warranted to decide a second question: is the “no-

interest” presumption applicable here? The court of appeals’

holding that the remedy for violations of the Export Clause

does not include an award of interest — such that the govern-

ment may effectively demand of exporters an interest-free

loan — runs directly contrary to the constitutional design,

which (as the Court previously held in this very case) sought

to prevent any burden on exports by “denying to Congress the

power to tax exports at all.” Pet. App. 108a (emphasis

added). Here, the government claims the right to deprive ex-

porters of the lost time-value of the unlawfully exacted

money to the tune of more than $700 million. At the very

least, the Export Clause requires the government to disgorge

the actual proceeds it earned on the unconstitutional exaction,

for the framers intended that “exports should not be made a

source of revenue to the National Government” (Fairbank v.

United States, 181 U.S. 283, 292-93 (1901) (emphasis

added)).

Indeed, the no-interest presumption is simply inapplicable

where (as here) the government has actually realized profits

from its investment of unlawful exactions. Such a case in-

volves what Justice Kennedy has termed “accrued interest” —

viz., proceeds that the government itself has actually reaped

from exactions that were invalid ab initio. Eastern Enter-

prises v. Apfel, 524 U.S. 498, 540 (1998) (concurring opin-

ion). The Federal Circuit’s decision cannot be reconciled

with this Court’s express holdings that the government must

disgorge the proceeds it earns on unlawfuily exacted funds,

and that the no-interest presumption is inapplicable in that

circumstance. Henkels v. Sutherland, 271 U.S. 298 (1926).

Two courts of appeals (disagreeing with four other circuits)

have reached the same conclusion and would award the pro-

ceeds to exporters.

In addition to the Export Clause, two other constitutional

provisions — the Takings and Due Process Clauses — require

the government to disgorge its profits in this case, both on the

ground that the framers could not have intended to permit the

government to adopt an unconstitutional tax, only to keep

proceeds earned on the principal over many years while the

unlawfulness of the exaction is determined. Even if the gov-

ernment’s retention of those discrete, identifiable, and identi-

fied proceeds did not amount to a “taking” of the claimants’

property within the meaning of the Fifth Amendment, surely

the government’s retention of those funds cannot be dignified

as a deprivation of that property with “due process of law.”

At the very least, the Federal Circuit’s construction of the

governing statutes not to support an award of interest should

be rejected because it raises serious constitutional questions

under the Export, Takings, and Due Process Clauses.

The petition for a writ of certiorari should accordingly be

granted.

1. Congress enacted the Harbor Maintenance Tax (HMT)

in 1986. 26 U.S.C. 4461-4462. The HMT charged shippers,

including exporters, a percentage of the value of the cargo

they shipped through the nation’s ports. Jd. § 4461(b),

(c)(1)(B). Congress directed that funds collected under the

HMT be held in a separate “Harbor Maintenance Trust Fund.”

26 U.S.C. 9505. The statute furthermore required that the

HMT funds be invested “in interest-bearing obligations of the

United States” and that revenues therefrom “be credited to

and form part of the Trust Fund.” /d. § 9602(b)(1), (b)(3).

The interest was reported separately to Congress.

Congress did not adopt a wholly new statutory scheme for

the collection, expenditure, and refund of funds paid under

the HMT. Nor did it enact a raft of amendments to the many

provisions of the U.S. Code governing existing customs du-

ties. Rather, it took a shortcut, directing that the already-

existing customs statutes would govern the HMT through the

“[e]xtension of provisions of law applicable to customs

dut[ies].” 26 U.S.C. 4462(f) (title). Specifically, “all admin-

istrative and enforcement provisions of customs laws and

regulations shall apply in respect of the [HMT] * * * as if

such tax were a customs duty.” Jd. § 4462(f)(1) (emphasis

added). Further, “[flor purposes of determining the jurisdic-

tion of any court of the United States * * *, the [HMT] shall

be treated as if such tax were a customs duty.” /d.

§ 4462(f)(2).

The HMT applied to tens of thousands of exporters, in-

cluding petitioner U.S. Shoe Corp. Petitioner paid the tax but

sued the United States in the Court of International Trade

(CIT) on the ground that the HMT violated the Constitution’s

Export Clause. The Export Ciause provides: “No Tax or

Duty shall be laid on articles exported from any State.” U.S.

CONST. art. I, § 9, cl. 5.

A special three-judge panel of the CIT unanimously a-

greed that the HMT violated the Export Clause and ordered

the United States to refund to exporters the tax they had paid.

Pet. App. 20a-57a. On the government’s appeal, a special

. five-judge panel of the Federal Circuit concluded that the CIT

had jurisdiction under 28 U.S.C. 1581(i) and affirmed on the

merits. Pet. App. 62a-88a. Only Chief Judge Mayer dis-

sented. Jd. 89a-101a.

2. The Solicitor General’s petition for certiorari from the

Federal Circuit’s decision asserted that review was essential

because “several thousand cases pending in the Court of In-

ternational Trade and the Court of Federal Claims raise the

Same question presented in this case” and the funds at stake

“exceed several hundred million dollars.” No. 97-372, Pet.

for Cert. 25. “In similar contexts,” the government explained,

“this Court has recognized the need for plenary review of

Federal Circuit decisions of significant fiscal importance,”

particularly when (as in this case) there is no realistic prospect

that “any other court of appeals will have an opportunity to

review the issue.” Jd. See also id. at 12.

This Court granted certiorari (522 U.S. 944 (1997)) and

unanimously affirmed (Pet. App. 102a-10a). Preliminarily,

the Court agreed that jurisdiction was proper in the CIT under

28 U.S.C. 1581(1). That statute provides in relevant part:

“(T]he Court of International Trade shall have exclusive ju-

risdiction of any civil action commenced against the United

States * * * that arises out of any law of the United States

providing for * * * revenue from imports” or relating to other

duties or restrictions on “the importation of merchandise.” /d.

§ 1581(i)(1)-(3). This Court rejected the argument that Sec-

tion 1581(i) does not apply to a duty on exports. The Court

found the fact that the statute nominally applied only to “im-

ports” both “hardly surprising in view of the Export Clause,

which confines customs duties to imports,” and also irrele-

vant because “‘Congress [in § 4462(f)(2)] directed [that] the

[HMT] be treated as a customs duty for purposes of jurisdic-

tion.”” Pet. App. 106a (alterations in original) (quoting CIT’s

decision, Pet. App. 46a).

On the merits, this Court affirmed the Federal Circuit’s

holding that the HMT was unconstitutional as applied to ex-

ports. The text and purposes of the Export Clause, the Court

explained, categorically prohibit any tax on exports. “[T]he

Export Clause’s simple, direct, unqualified prohibition on any

taxes or duties distinguishes it from other constitutional limi-

tations on governmental taxing authority.” Pet. App. 108a.

The framers, having determined that “exports should not be

made a source of revenue to the National Government” and

furthermore “that the National Government should put noth-

ing in the way of burden upon such exports” (Fairbank v.

United States, 181 U.S. 283, 292-93 (1901)), “completely

den[ied] to Congress the power to tax exports at all” (Pet.

App. 108a (quoting United States v. IBM Corp., 517 USS.

843, 861 (1996)) (alterations omitted) (emphasis added)).

3. On remand, the CIT reinstated its order that the gov-

ernment refund the HMT. Pet. App. 11 1a-13a.' By that time,

exporters had been assessed approximately $1.4 billion. The

statutory interest owing to exporters totals at least $700 mil-

lion. The CIT directed that the refunds include interest. Jd

112a-13a.

On the government’s appeal, the Federal Circuit reversed.

Pet. App. la-12a (per Mayer, C.J.). The court of appeals first

rejected U.S. Shoe’s arguments that Congress had waived the

government’s immunity from interest by statute. See Pet.

App. 4a-6a (applying its ruling in a parallel suit by IBM, re-

produced infra at Pet. App. 116a-29a7). Although the court

of appeals acknowledged the provisions of the customs and

tax laws broadly waiving the federal government’s immunity

from interest, it concluded that a refund of the HMT did not

fall within any of those statutes.

The Federal Circuit thus heid that interest was not avail-

able under 19 U.S.C. 1505, which provides in relevant part:

' The Federal Circuit also approved an administrative refund

mechanism for exporters in Swisher International, Inc. v. United

States, 205 F.3d 1358, cert. denied, 531 U.S. 1036 (2000). This

case will determine whether exporters receiving these “Swisher

refunds” will receive interest from the date they made their HMT

payments.

’ The Federal Circuit in JBM rejected an exporter’s claim that it

had a statutory right to interest. The exporter then sought review in

this Court, but only on constitutional grounds that the Federal Cir-

cuit had not addressed. See U.S. BIO, No. 00-482, at 5 (“[T]he

asserted constitutional issues that petitioner now seeks to raise were

not raised in the court of appeals and are thus not properly pre-

sented in this case.”). This Court not surprisingly denied certiorari.

531 U.S. 1183 (2001).

19 U.S.C. 1505(b). [Refund of duties * * * and interest

due _ upon liquidation or reliquidation. The Customs Ser-

vice shall * * * refund any excess monies deposited, to-

gether with interest thereon, as determined on a liquidation

or reliquidation.

19 U.S.C. 1505(c). Interest. Interest on excess moneys

deposited shall accrue * * * from the date the importer of

record deposits estimated duties, fees, and interest * * * to

the date of liquidation or reliquidation of the applicable en-

try or reconciliation.

The court of appeals acknowledged Congress’s direction

that “a// administrative and enforcement provisions of cus-

toms laws and regulations shall apply in respect of the [HMT]

* * * as if such tax were a customs duty.” 26 U.S.C. 4462

(f)(1) (emphases added). Nor was there any dispute that Sec-

tion 1505 is an “administrative and enforcement provision of

the customs laws.” Pet. App. 5a-6a. Yet the court of appeals

nonetheless held that Section 1505 was inapplicable on the

ground that it “contemplates an entirely different factual sce-

nario from the one before us” because the terms “importer of

record,” “liquidation,” and “entry” do not apply to the taxa-

tion of exports. /d. 128a.

The Federal Circuit also held that interest was not avail-

able under 28 U.S.C. 2411, which provides: “In any judg-

ment of any court rendered * * * for any overpayment in re-

spect of any internal-revenue tax, interest shall be allowed

***” See Pet. App. 5a. The court of appeals found it de-

terminative that Congress had provided that “[t]he tax im-

posed by this subchapter shall not be treated as a tax for pur-

poses of subtitle F or any other provision of law relating to

the administration and enforcement of internal revenue

taxes.” 26 U.S.C. 4462(f)(3). According to the Federal Cir-

cuit, every provision of law relating to tax reimbursements —

including any provision requiring the government to pay in-

terest on court-ordered reimbursements — necessarily “re-

late[s] to the administration and enforcement of internal reve-

nue taxes.” Pet. App. 122a-27a.

The Federal Circuit also rejected U.S. Shoe’s argument

that an express waiver of the government’s immunity was un-

necessary because it was not seeking “interest.” U.S. Shoe

relied on the Sixth and Ninth Circuits’ holdings that a court

order requiring the government to disgorge the proceeds it

earned on unlawfully forfeited money does not implicate the

government’s immunity from “interest.” United States v.

$515,060.42, 152 F.3d 491, 504-06 (CA6 1998); United

States v. $277,000, 69 F.3d 1491 (CA9 1995). The govern- -

ment acknowledged that “the courts are split” over this ques-

tion. U.S. C.A. Br. 46. The Federal Circuit, however, held

that an express waiver of immunity is required even in this

circumstance. Pet. App. | la-12a.

The Federal Circuit separately rejected petitioner’s argu-

ment that the Export Clause itself conferred either a right to

the $700 million in lost time-value of the money or an enti-

tlement to the more than $70 million in proceeds the govern-

ment had actually earned on the unconstitutional HMT pay-

ments.’ The court of appeals found it dispositive that the

Takings Clause, which confers a right to interest, has a “re-

storative clause” that is absent from the Export Clause: pri-

vate property shall not “be taken for public use without just

ccmpensation.” Pet. App. 9a-1 la.

Nor, the court of appeals held, did the Constitution other-

wise require the government to disgorge the proceeds. There -

was no Fifth Amendment Taking or violation of the Due

Process Clause, the court ruled, because “(t]he tax revenue

here was not held by the government as property of U.S.

Shoe. It became the property of the Treasury upon payment,

* The $70 million figure is the most conservative estimate of

the government’s profits. Other estimates, which better account for

the government’s investment and spending of monies in the Trust

Fund, place the figure in the hundreds of millions of dollars.

at ee

and was appropriated to the Harbor Maintenance Trust Fund

along with” HMT payments by parties other than exporters.

Pet. App. 8a. Moreover, according to the opinion below, the

government’s retention of proceeds on the unconstitutional

tax was constitutional because the HMT itself “served the ra-

tional purpose of maintaining the ports”: “‘Congress man-

dated that fees collected from the HMT be used only for

commercial navigation projects.”” Jd. 9a (quoting Mayer,

C.J., dissenting from Federal Circuit’s holding in U.S. Shoe I

that HMT violated the Export Clause).

4. The Federal Circuit denied rehearing en banc (Pet.

App. 114a-115a) and this petition for certiorari followed.

REASONS FOR GRANTING THE WRIT

This Court previously held in this case that the HMT vio- !

lates the Export Clause of the Constitution. Certiorari should

be granted because, although the government has begun re-

funding the principal, this case controls the disposition of

thousands of other challenges to the government’s failure to

pay interest. At least $700 million is at stake. The govern-

ment’s own petition successfully urging this Court to grant

plenary review in U.S. Shoe I emphasized the Court’s practice

of reviewing decisions of the Federal Circuit that are of such

significant fiscal importance.

Review is furthermore warranted because the Federal Cir-

cuit’s decision cannot be reconciled with the statutory text,

the clear import of this Court’s prior decision, or the govern-

ment’s own practice. Congress has broadly waived the gov-

ernment’s immunity from interest under the customs and tax

laws. Most obviously, Congress specified that the HMT shall

be treated as a customs duty — a provision central to this

Court’s jurisdictional ruling in this case (Pet. App. 105a-06a)

— and provided that refunds of customs duties shall include

interest. 26 U.S.C. 4462(f); 19 U.S.C. 1505. The government

has elsewhere conceded, both explicitly and by implication,

that Section 1505 requires it to pay interest.

Finally, review is warranted to determine whether an ex-

press waiver of the government’s immunity from interest is

required at all. This Court has squarely held that no waiver is

required when disgorgement of profits is in question. Henkels

v. Sutherland, 271 U.S. 298 (1926). Nonetheless, substantial

disagreement remains on the issue, as shown by the four-to-

two circuit conflict in the related context of the government’s

refund of monies that it has unlawfully forfeited. Further,

precedents applying three constitutional provisions — the Ex-

port, Takings, and Due Process Clauses — establish that when

the government unconstitutionally exacts monies, it must re-

turn not just the principal but also any proceeds that it actu-

ally earned during the period that it unlawfully held the prin-

cipal. Indeed, the Export Clause is properly construed to con-

fer a right to interest whether or not the government has

earned any proceeds. These serious constitutional questions,

of course, can and should be avoided by recognizing that

Congress has waived the government’s immunity from inter-

est in this case.

I. Certiorari Should Be Granted In Light Of The Im-

portance Of The Federal Circuit’s Decision.

Congress enacted the Harbor Maintenance Tax in 1986,

specifying that HMT assessments be deposited in a discrete

trust fund where they would, in turn, be invested in interest-

bearing securities. 26 U.S.C. 9505, 9602(b). Pursuant to the

statute, many tens of thousands of exporters paid approxi-

mately $1.4 billion in taxes on their exports. The lost time-

value of the exporters’ money has reached more than $700

million. The government itself has earned on the principal,

and deposited into the Trust Fund, at least $70 million.

Although thousands of exporters have still not received

full refunds of the principal, at least that process began when

this Court in 1998 unanimously invalidated the HMT as a vio-

lation of the Export Clause. Pet. App. 102a-10a. The gov-

ernment nonetheless insists that it has no obligation to pro-

vide exporters either statutory interest or the massive pro-

ceeds that it earned and continues to earn on the principal that

it unlawfully exacted. The Federal Circuit approved that ex-

traordinary result.

This case controls the approximately 7500 other claims

that have been brought against the government, and thus con-

trols the disposition of the more than $700 million in interest

that is rightfully owed to the exporters. All the claims lie

within the exclusive jurisdiction of the Federal Circuit. Ifthe

Court denies this petition for certiorari — together with the ex-

pected follow-on petitions of other exporters — it will effec-

tively close the door on the rights of thousands of litigants.

The Court’s practice in these circumstances has been to

grant <ertiorari. The Solicitor General successfully made that

point earlier in this very case, and the government’s inevitable

assertion that review is now not warranted will ring hollow

with the sound of self-interest. Here as in U.S. Shoe I

“{t]housands of cases” involving sums that “exceed several

hundred million dollars” are at stake. No. 97-372, Pet. for

Cert. 25. Jurisdiction on each claim “will lie exclusively [in]

the Federal Circuit.” /d. (citing 28 U.S.C. 1295(a)(3), (5)). In

such a circumstance, the Solicitor General explained, “this

Court has recognized the need for plenary review of Federal |

Circuit decisions of significant fiscal importance.” Jd.‘

Certiorari is warranted in this case in particular because,

as petitioner now shows, the decision below cannot be recon-

* The government cited: United States v. Hill, 506 U.S. 546

(1993) (interpreting 26 U.S.C. 56, 57(a)(8), which requires pay-

ment of a “minimum tax” on items above the “adjusted basis” of

deposit interests); United States v. Goodyear Tire & Rubber Co.,

493 U.S. 132 (1989) (holding that “accumulated profits” in the in-

direct tax provision statute — 29 U.S.C. 902 — are to be measured by

U.S., not foreign, principles of taxation); and United States v.

American Bar Endowment, 477 U.S. 105 (1986) (interpreting the

words “unreiated business income” in 26 U.S.C. 511-513, which

subjects such income to taxation).

ciled with the statutory text, this Court’s precedents, or the

government’s own practice.

II. Certiorari Should Be Granted Because The Federal

Circuit Failed To Give Effect To Congress’s Intent To

Waive The Government’s Immunity From Interest.

The Federal Circuit’s decision in this case concludes that

Congress failed to waive the government’s immunity from

interest in issuing refunds of the HMT. Yet the government

was unable to offer, and the court of appeals failed to articu-

late, any reason for Congress to have adopted so strange a

course — strange, given that it has so conspicuously, categori-

cally, and comprehensively waived the government’s immu-

nity from interest with respect to both taxes and customs du-

ties. Congress has conferred a broad right to interest on re-

payments by the Internal Revenue Service and the Customs

Service, as well as on payments that the courts order either of

those entities to make. See 19 U.S.C. 1505(b) (“The Customs

Service shall * * * refund any excess moneys deposited, to-

gether with interest thereon.”); 26 U.S.C. 661 l(a) (“Interest

shall be allowed and paid upon any overpayment in respect of

any internal revenue tax * * *.”); 28 U.S.C. 2411 (“In any

judgment of any court rendered * * * for any overpayment in

respect of any internal-revenue tax, interest shall be allowed

***”); id. § 2644 (“If, in a civil action in the Court of

International Trade under [the administrative protest

provision of the customs laws], the plaintiff obtains monetary

relief by a judgment or under a stipulation agreement, interest

shall be allowed * * *.”). To read the governing statutes as

the government and the Federal Circuit would have this Court

read them — i.e., as reflecting an implicit intent to withdraw

these broad waivers of immunity for this one important cate-

gory of cases — is to attribute to Congress nothing short of

utter caprice.

1. Congress most obviously conferred on exporters a

right to interest on a refund of the HMT in 19 U.S.C. 1505.

That statute provides in relevant part:

19 U.S.C. 1505(b). [Rlefund of duties * * * and interest

due upon liquidation or reliquidation. The Customs Ser-

vice shall * * * refund any excess monies deposited, to-

gether with interest thereon, as determined on a liquidation

or reliquidation.

19 U.S.C. 1505(c). Interest. Interest on excess moneys

deposited shall accrue * * * from the date the importer of

record deposits estimated duties, fees, and interest * * * to

the date of liquidation or reliquidation of the applicable en-

try or reconciliation.

The Federal Circuit held that Section 1505 is inapplicable be-

cause it “contemplates an entirely different factual scenario

from the one before us” in that the terms “importer of record,”

“liquidation,” and “entry” do not apply to the taxation of ex-

ports pursuant to the HMT. Pet. App. 128a. The Federal Cir-

cuit’s construction lacks merit.

a. If Section 1505 did not apply to the HMT on exports,

then the government would lack any statutory mechanism

prescribing the manner in which it should refund the princi-

pal, whether in the event of an administrative overassessment,

an inadvertent overpayment, or (as here) an unconstitutional

tax. That cannot be so. Section 1505(b) thus provides statu-

tory authority for a refund, together with interest, in one

breath; both stand or fall together: “The Customs Service

shall * * * refund any excess monies deposited, together with

interest thereon, as determined on a liquidation or reliquida-

tion.” |

Even the government concedes that Congress could not

have intended such a result. The Customs Service thus

adopted regulations providing for refunds. See 19 C.F.R.

24.24(e)(4) (2000 and 2001). The proposed regulations all

relied in pertinent part on Section 1505. 67 Fed. Reg. 31,948

(May 13, 2002); 66 Fed. Reg. 16,854 (Mar. 28, 2001); 66

Fed. Reg. 21,086 (Apr. 27, 2001); 66 Fed. Reg. 34,813 (July

2, 2001). This concession that Section 1505 authorizes re-

funds of the HMT to exporters necessarily carries the further

concession that interest is available as well, for (as noted) the

latter follows automatically from the former according to the

plain text of the <* atute.°

b. The Federal Circuit’s construction is furthermore un-

supportable because it flouts Congress’s design of the HMT

in general and 26 U.S.C. 4462(f) in particular. Rather than

enacting a broad new regulatory scheme or amending all of

the customs laws to account for the HMT, Congress provided

_— that the tax would be collected, disbursed, and refunded

through “[e]xtension of provisions of law applicable to cus-

toms dut[ies].” 26 U.S.C. 4462(f) (title). In particular: ‘“‘a//

administrative and enforcement provisions of customs laws

and regulations shall apply in respect of the [HMT] * * * as if

such tax were a customs duty.” Id. § 4462(f)(1) (emphases

added).

There is no dispute that Section 1505 is an “administrative

and enforcement provision of the customs laws.” Section

1505, entitled “Payment of duties and fees,” is codified in

Chapter 4 of Title 19, which sets forth the “{a]dministrative

[p]rovisions” (title) of the customs laws. Yet the court of ap-

peals inexplicably failed to follow Congress’s direction to ap-

ply Section 1505 “as if [the HMT] were a customs duty.” If it

> The first three Federal Register notices cited only Section

1505. The final version included an unexplained further citation to

19 U.S.C. 1520, but that statute does not support the Federal Cir-

cuit’s decision. Because Congress directed that the HMT be treated

as a customs duty, a refund could be available under Section 1520

only if “it is ascertained on liquidation or reliquidation of an entry

or reconciliation that more money has been deposited or paid as

duties than was required by law to be so deposited or paid.” /d.

§ 1520(a)(1) (emphasis added). Thus, to the extent the government

relies on Section 1520 as authority for issuing refunds, it must con-

cede that the provisions of the customs laws apply to the HMT

notwithstanding that they contemplate “liquidation or reliquidation”

and the existence of “an entry or reconciliation.”

had heeded that command, the court of appeals would have

found that exporters have a right to interest. The terms that

the Federal Circuit found critical in Section 1505 — “im-

porter,” “liquidation,” “entry,” and “reconciliation” — appear

throughout the administration and enforcement provisions of

the customs laws and regulations because they govern the

payment of customs duties. See 19 U.S.C. 1500; 19 C.F.R.

19.12 (providing for reconciliations); id. § 141.0a(a) (defining

entry); id. § 159.1 (defining liquidation).

That is precisely the reasoning underlying this Court’s ju-

risdictional holding in U.S. Shoe J. This Court in U.S. Shoe I

affirmed the Federal Circuit’s determination that jurisdiction

is proper under 28 U.S.C. 1581(i), which grants the CIT “ex-

clusive jurisdiction of any civil action conimenced against the

United States * * * that arises out of any law of the United

States providing for * * * revenue from imports” or other du-

ties or restrictions on “the importation of merchandise.” /d.

§ 1581(i)(1)-(3). In reaching that conclusion, this Court

found that Section 4462(f)(2) made Section 1581(i)’s refer-

ence only to “imports” immaterial:

True, § 1581(i) does not use the word “exports.” But that

is hardly surprising in view of the Export Clause, which

confines customs duties to imports. Revenue from imports

and revenue from customs duties are thus synonymous in

this setting. In short, as the CIT correctly concluded and

the Federal Circuit correctly affirmed, “Congress [in

§ 4462(f)(2)] directed [that] the [HMT] be treated as a cus-

toms duty for purposes of jurisdiction. Such duties, by

their very nature, provide for revenue from imports, and

are encompassed within [§] 1581(i)(1).”

Pet. App. 106a (quoting Pet. App. 46a).

The very purpose of Section 4462(f) is thus to ensure that

the substantive and jurisdictional provisions of the customs

laws govern the HMT notwithstanding that the tax applies to

exporters, not merely “importers,” and in that respect does not

A is it Be NU Et Na wih a EE,

call for an “entry,” a “liquidation,” or a “reconciliation.”

Congress intended that the courts ignore those differences in

applying the customs laws so that it could avoid revising

those statutes wholesale.

It is therefore clear that Section 1505(b) uses the words

“on a liquidation or reliquidation” simply to refer to the ordi-

nary method of calculating a refund, with interest, of duties

on imports — the duties to which the customs laws usually ap-

ply. Pet. App. 130a. There is no reason to believe Congress

intended to permit Customs to circumvent its duty to pay a

refund and interest by employing a particular method to col-

lect the HMT or determine the amount owed to the exporter.

This case is a perfect example: no technical mechanism need

(or logically would) be used to determine ‘the amount owed

because this Court has held that every single cent exacted

pursuant to the HMT is unconstitutional as applied to exports.

To the extent the timing provision of Section 1505(c) is inap-

plicable, that is no obstacle to an award of otherwise-owing

interest, which obviously runs from the date the government

received the principal.°

Indeed, the Customs Service itself acknowledged — out-

side the self-interested context of this litigation — that Section

4462 unmistakably commanded that interest be available un-

_ der Section 1505. After Congress adopted Section 1505 in its

current form, Customs issued a draft notice of proposed rule-

making setting forth its views on how the statute applied to

other customs laws. See Pet. 140a-43a (excerpting relevant

° At the very least, Customs was compelled under 26 U.S.C.

4462(f)(1) to utilize the standard tools of “entries” and “liquida-

tions” in calculating and collecting the HMT because Congress di-

rected Customs to administer the HMT as if it “were a customs

duty.” See 19 U.S.C. 1500. Customs cannot use its own failure to

follow that clear command to frustrate Congress’s intent to award

interest.

provisions).’ Customs acknowledged that, in light of Section

4462, “section [1505] interest principles [apply] * * * even

where the final amount of the required fee payment is not fi-

nally determined in connection with a liquidation or reliqui-

dation.” Id. 141a (emphasis added). Customs thus acknowl-

edged that it was “required to apply the rules and principles

of section [1505]” to the HMT because it “believe[d] that sec-

tion [1505] is one of the customs laws which by Congres-

sional mandate applies to the fees and taxes Customs collects

pursuant to [the HMT].” Jd. (emphases added). Customs

specified that this conclusion included the application of Sec-

tion 1505’s “interest provisions to * * * the port use (harbor

maintenance) fee applicable * * * to the export * * * of mer-

chandise,” such that “interest accrues on overpayments of all

fees from the date the fee was deposited with Customs.” /d.

141a-142a.

2. Congress separately waived the government’s immu-

nity from interest in a provision of the Judicial Code, 28

U.S.C. 2411. That statute provides: “In any judgment of any

court rendered * * * for any overpayment in respect of any

internal-revenue tax, interest shall be allowed * * *.”

The Federal Circuit did not doubt that “the structure and

the content of the HMT point toward it being an internal

revenue tax, and thus entitled on refund to the interest award

provided under § 2411.” Pet. App. 123a. The court of ap-

peals thus recognized that the Harbor Maintenance Jax is

’ During the appellate proceedings in U.S. Shoe I, Customs

withheld action on the notice. After this Court’s decision invalidat-

ing the HMT, Customs issued a new proposed rulemaking but

omitted its prior acknowledgment of a right to interest. 64 Fed.

Reg. 56,433 (Oct. 20, 1999). Petitioner is including the original

draft notice in the appendix because Customs appears to have de-

leted the document from its electronic bulletin board during the

course of the appellate litigation over the right to interest on HMT

refunds.

codified in the Internal Revenue Code and “‘is clearly derived

from internal sources — the U.S. exporter.” Jd. The Federal

Circuit nonetheless held that interest is not available in light

of 26 U.S.C. 4462(f)(3). That statute provides that the HMT

“shall not be treated as a tax for purposes of subtitle F [of the

Internal Revenue Code] or any other provision of law relating

to the administration and enforcement of internal revenue

taxes.” The court of appeals acknowledged that Section

2411’s provision for the award of interest is codified in the

Judicial Code, not the Internal Revenue Code, but held that

Section 2411 “relates to the administration and enforcement”

of taxes, which it defined to mean “enforcement of the tax

laws, including the obtaining and enforcement of judgments

against both taxpayers and the United States.” Pet. App.

125a.

The court of appeals erred because it failed to recognize

the limited role of Section 2411. That statute is not a direc-

tive to the Internal Revenue Service to award refunds, nor

does it implement any provision of law contained in the Inter-

nal Revenue Code. Rather, it is a separate authorization in

the Judicial Code for courts to include interest on refunds that

they award to taxpayers. The statute merely provides that

“{iJn any judgment of any court rendered * * * for any over-

payment in respect of any internal-revenue tax, interest shall

be allowed * * *.” 28 U.S.C. 2411. Section 2411 is thus not

a “provision of law relating to the administration and en-

forcement of internal revenue taxes” (26 U.S.C. 4462(f)(3)).

That conclusion is apparent from the contrast between

Section 2411 and those statutes that direct agencies to award

refunds with interest. Thus, 26 U.S.C. 6611 governs the IRS

directly and provides: “Interest shall be allowed and paid

upon any overpayment in respect of any internal revenue tax

** *” In add’-ion, 19 U.S.C. 1505, discussed supra, directs

the Customs Service specifically to award refunds and interest

in certain circumstances. Both 26 U.S.C. 6611 and 19 U.S.C.

1505 are thus properly understood to “relate to the admini-

stration and enforcement” of, respectively, the tax and cus-

toms laws.

For the foregoing reasons, Sections 1505 and 2411 confer

upon exporters a right to interest. Congress clearly intended

that interest be paid on both illegally collected taxes and ille-

gally assessed customs duties. As a drafting short-cut, Con-

gress shunted certain questions regarding its Harbor Mainte-

nance Tax to provisions of the customs laws. Those provi-

sions refer only to import duties, not export duties, because

the latter violate the Constitution. From this the government

and the court below conclude that Congress, which repeatedly

indicated its wish that interest be paid on illegal exactions,

has not succeeded in ordering payment of interest on illegally

exacted export duties by any route. This Court rejected such

a Catch-22 interpretation in respect to the CIT’s jurisdiction

in U.S. Shoe I and should reject it here as well.

But even if the Court were to conclude that Congress did

not waive the government’s immunity and thus inadvertently

permitted the utterly unjust outcome reached below, certiorari

would be warranted to decide a second question: is the “no-

interest” presumption even applicable here? As petitioner

now shows, the answer to that question is “no,” and this Court

should furthermore recognize the inapplicability of sovereign

immunity to the award of interest in such cases so as to avoid

the substantial constitutional questions that would otherwise

arise. Ashwander v. Tennessee Valley Authority, 297 U.S.

288, 347 (1936) (Brandeis, J., concurring).

Ill. Certiorari Should Be Granted To Determine Whether

A Waiver Of The Government’s Immunity From In-

terest Is Required.

1. The Federal Circuit rejected the argument that the Ex-

port Clause itself requires the payment of interest as part of

the compensation for the government’s flat violation of the

Export Clause. In particular, the court of appeals found dis-

positive the fact that, unlike the Export Clause, the Takings

Clause includes “the restorative clause, ‘without just compen-

sation.” Pet. App. lla. That decision conflicts with the text

of the Export Clause and with this Court’s precedents. As

this Court has concluded on the basis of the text and history,

“the original impetus may have had a narrow focus, [but] the

remedial provision that ultimately became the Export Clause

does not.” United States v. IBM Corp., 517 U.S. 843, 859-60

(1996) (emphases added).

The Constitution’s Export Clause is categorical. Its “sim-

ple, direct, unqualified prohibition on any taxes or duties,”

this Court previously explained in this case, “distinguishes it

from other constitutional limitations on governmental taxing

authority.” Pet. App. 108a. Although the framers in other

provisions mandated, for example, “just compensation” (U.S.

CONST. amend. V) and “due process” (id.), in the Export

Clause they clearly and succinctly commanded: “No Tax or

Duty shall be laid on articles exported from any State.” U.S.

CONST. art. I, § 9, cl. 5. The “proponents of the Clause fully

intended the breadth of scope that is evident in the language.”

IBM, 517 U.S. at 859-60. The framers could not have in-

tended the categorical prohibition of the Constitution’s text

against any export tax to have Jess force and effect than the

Fifth Amendment’s more permissive provision allowing the

taking of private property so long as just compensation is

provided.

999

The categorical text of the Export Clause reflects the fram-

ers’ expansive purposes. Although some favored crafting a

provision that more narrowly woula prevent the government

from using exports as a source of general tax revenues, a

broader conception of the Clause as a protection of exports

prevailed. More than a century ago, this Court explained:

[T]he purpose of the restriction is that exportation, all ex-

portation, shall be free from national burden. This intent,

although obvious from the language of the clause itself, is

reinforced by the fact that in the constitutional convention

Mr. Clymer moved to insert after the word “duty” the

words “for the purpose of revenue” but the motion was

voted down. So it is clear that the framers of the Constitu-

tion intended not merely that exports should not be made a

source of revenue to the National Government, but that the |

National Government should put nothing in the way of |

burden upon such exports.

Fairbank v. United States, 181 U.S. 283, 292-93 (1901). As

this Court previously concluded in this case, the framers re-

sponded to the “concern[] that Northern States would tax ex-

ports to the disadvantage of Southern States by completely |

denying to Congress the power to tax exports at all.” Pet.

App. 108a (quoting JBM, supra 517 U.S. at 861) (emphasis

added).

The Federal Circuit’s decision runs contrary to both of

these purposes of the Export Clause recognized in Fairbank.

The government’s retention of the proceeds earned while the

funds paid by exporters have been held in the Harbor Mainte-

nance Trust Fund manifestly constitutes a prohibited “source

of revenue to the National Government.” Fairbank, 181 U.S.

at 292. Further, the government’s failure either to pay interest

as the lost time-value of the exporters’ money or to disgorge

the proceeds actually earned would be a profound “burden

upon such exports.” /d. at 293. The Export Clause prohibits

restraining exports through even $1 in taxation. It cannot se-

riously be imagined that the Clause permits exporters to suf-

fer the burden of effectively losing the value of $700 million

as a result of an admittedly unconstitutional tax on exports.

Finally, the Federal Circuit’s textual reasoning produces

absurd results. The court took an “expressio unius”-like ap-

proach to the fact that only the Takings Clause has a “just

compensation” requirement. That reasoning attributes to the

framers the intent that the Constitution’s other clauses prohib-

iting the government from seizing funds in certain circum-

stances — including not only the Export Clause but also the

Import/Export Clause — provide the victims of the govern-

ment’s unconstitutional acts either no refund at all or, at most,

compensation that is less than “just.” That is absurd, and

even the Federal Circuit has previously held that “[t]he neces-

sary implication of the Export Clause’s unqualified proscrip-

tion is that the remedy for its violation entails a return of

money unlawfully exacted. * * * [A]bsent a prompt restora-

tion of [such] money * * *, the Export Clause would be more

hollow than real because in the event that Congress imposed

export taxes, equitable relief alone could not ameliorate the

harm.” Cyprus Amax Coal Co. v. United States, 205 F.3d

1369, 1373-74 (2000), cert. denied, 532 U.S. 1065 (2001).

2. At the very least, no express waiver of the govern-

ment’s immunity is needed when the government is required

to refund significant profits that it has actually earned on

unlawful exactions. See Henkels v. Sutherland, 271 U.S. 298

(1926). In Henkels, the federal government unlawfully seized

the petitioner’s securities pursuant to the Trading with the

Enemy Act, sold the securities, and deposited the proceeds

into an interest-bearing account where they were commingled

with other monies. This Court held the petitioner was entitled

not only to a refund but also to the government’s earnings

from investing the sale of his securities. /d. at 301.

The Court recognized the basic rule that “{t]he Govern-

ment cannot be sued without its consent; and, accordingly, it

cannot be sued for interest unless it consents to be liable

therefor.” 271 U.S. at 301. But the Court explained that “the

claim here is not for interest to be paid by the United States in

the sense of the [no-interest] rule. It is for income, derived

from an investment of Henkels’ money in obligations of the

United States, which income has been actually received by

the Treasury and is in its possession * * *.” Jd The govern-

ment “cannot confiscate the actual increment of property be-

longing to a citizen * * * any more than it can confiscate the

property or its proceeds, without coming into conflict with the

Constitution.” Jd.

The Sixth and Ninth Circuits have reached the same con-

clusion and would require the government to disgorge the

proceeds it earns. Those courts would reason that “the inter-

EE EE

est earned on the money in an interest-bearing account would

become part of, and would be substituted for (along with the

original amount) the res.” United States v. $277,000, 69 F.3d

1491, 1496 (CA9 1995). On this question, “the circuits are

split” (United States v. $30,006.25, 236 F.2d 610, 613 (CAI0

2000)) four-to-two. Accord U.S. C.A. Br. 46 (“the courts are

split”).® Although the appellate decisions giving rise to the

conflict arose from unlawful forfeitures — and Congress has

recently provided for the award of interest in that specific cir-

cumstance (28 U.S.C. 2465(b)(1)(C)) — the conflict is appli-

cable generally to all unlawful exactions of money. E£.g., E.

W. Scripps Co. v. United States, 2002 U.S. Dist. LEXIS

20283 (S.D. Ohio Sept. 16, 2002) (holding that right to inter-

est on refund of tax overpayment existed under Sixth and

Ninth Circuits’ view that no waiver of immunity is required).

Although no challenge to the HMT can actually arise in the

Sixth or Ninth Circuits, it is a testament to the seriousness of

the issue that two courts of appeals would hold that petitioner

has a right to the proceeds earned by the government on peti-

tioner’s HMT payments.

This case presents the strongest possible circumstance for

holding that no waiver of the government’s sovereign immu-

nity from interest is required where the government has real-,

ized actual proceeds, because a contrary ruling (such as the

holding of the Federal Circuit in this case) would raise serious

constitutional questions. Precedents under three constitu-

* The Sixth and Ninth Circuits hold that no waiver is required.

United States v. $515,060.42, 152 F.3d 491, 504-06 (CA6 1998);

United States v. $277,000, 69 F.3d 1491 (CA9 1995); see also

United States v. $133,735.30, 139 F.3d 729, 731-32 (CA9 1998);

United States v. $40,000, 1998 U.S. Dist. LEXIS 14649 (D.P.R.

Sept. 1, 1998). The First, Second, Eighth, and Tenth Circuits dis-

agree. Larson v. United States, 274 F.3d 643 (CAI 2001);

$30,006.25, 236 F.3d at 614-15; United States v. $7,990, 170 F.3d

843, 845-46 (CA8 1999); Jkelionwu v. United States, 150 F.3d 233,

238-39 (CA2 1998).

tional provisions — the Export, Takings, and Due Process

Clauses — establish that exporters have a constitutional right

to the proceeds earned by the government on the HMT funds.

In addition to the authorities cited above under the Export

Clause, petitioner presents a substantial argument that the

government is required by the Takings and Due Process

Clauses to disgorge the proceeds it actually earned on the

HMT. See Webb’s Fabulous Pharmacies, Inc. v. Beckwith,

449 U.S. 155 (1980); Eastern Enterprises v. Apfel, 524 U.S.

498, 540 (1998) (Kennedy, J., concurring) (distinguishing

challenge to general tax from claimed right to “accrued inter-

est”). The Federal Circuit rejected those arguments on the

ground that “[t]he tax revenue here was not held by the gov-

ernment as property of U.S. Shoe. It became the property of

the Treasury upon payment, and was appropriated to the Har-

bor Maintenance Trust Fund along with” HMT payments by

parties other than exporters. Pet. App. 8a. Furthermore, the

HMT “served the rational purpose of maintaining the ports”:

“Congress mandated that fees collected from the HMT be

used only for commercial navigation projects.’” Jd. 9a (quot-

ing Mayer, C.J., dissenting from Federal Circuit’s holding in

U.S. Shoe I that HMT violated the Export Clause).

The Federal Circuit’s reasoning is open to serious ques-

tion and merits further review. As a constitutional matter, the

court of appeals certainly erred in relying on the fact (Pet.

App. 8a) that the government “held” the HMT payments as its

Own rather than as the property of the exporters. Although

the HMT payments were in the government’s hands, and the

government refused to acknowledge their rightful ownership,

the money plainly was the “property” of the exporters all

along. That is so because the government’s action was un-

constitutional, and “what a court does with regard to an un-

constitutional law is simply to ignore it. It decides the case

‘disregarding the [. unconstitutional] law,’ because a law re-

pugnant to the Constitution ‘is void, and is as no law.’ Rey-

noldsville Casket Co. v. Hyde, 514 U.S. 749, 760 (1995)

(Scalia, J., concurring) (quoting Marbury v. Madison, 5 U.S.

(1 Cranch) 137, 178 (1880); Ex parte Siebold, 100 U.S. 371,

376 (1880)) (emphases and alteration in original). Cf. First

English Evangelical Lutheran Church v. County of Los Ange-

les, 482 U.S. 304, 320 (1987) (rejecting the argument that “no

compensable regulatory taking may occur until a challenged

ordinance has ultimately been held invalid”).

The Federal Circuit next relied on the fact that, although

the Harbor Maintenance Trust Fund by statute contains only

HMT payments and the proceeds earned by the government

on those payments (see 26 U.S.C. 9505, 9602(b)), the HMT

was not paid exclusively by exporters. Pet. App. 8a. This

Court’s jurisprudence, however, has never attributed such

controlling significance to the concept of a “discrete fund,”

which on the Federal Circuit’s view is an invitation to the

government to circumvent the Fifth Amendment by submerg-

ing all exacted funds within some larger account.

Finally, it is no answer to petitioner’s argument that Con-

gress had a “rational purpose of maintaining the ports” (Pet.

App. 9a) when it enacted the HMT. This is not a case in

which government action is challenged on the single ground

of “irrationality,” as would be the case if petitioner argued

that the HMT bore no rational relationship to preservation of

the port system. Petitioner instead argues that the Constitu-

tion does not permit the government to profit from its utterly

unconstitutional conduct. When the government has em-

ployed unconstitutional means, it is no defense that its pur-

pose was entirely legitimate. The Fifth Amendment thus does

not permit the government to “take” private property without

just compensation for a “rational” reason. Nor 1s the protec-

tion against “arbitrary” government action provided by the

Due Process Clause (e.g., Daniels v. Williams, 474 U.S. 327,

331 (1986); Fuentes v. Shevin, 407 U.S. 67, 82 (1972)) -

which is surely implicated when the government seeks to

profit enormously from its own unlawful conduct to the det-

riment of individuals forced to pay an unconstitutionai tax —

vitiated by the fact that the government had a “rational” rea-

son for wanting to violate the Constitution.

Put another way, the Federal Circuit addressed the wrong

question. The pertinent question for purposes of the Takings

and Due Process Clauses is not whether the tax itself was ar-

bitrary, but instead, once it was determined that the assess-

ment was unconstitutional, whether there would be any ra-

tional, nonarbitrary basis for the government to retain the pro-

ceeds it made from its investment of that unconstitutional as-

sessment, where the legislature itself regularly recognizes, in

analogous contexts, that equity requires the return of such

benefits to the innocent taxpayer. There is no such rational

basis.

CONCLUSION

For the foregoing reasons, the petition for a writ of certio-

rari should be granted.

Respectfully submitted,

Thomas C. Goldstein

Amy Howe

John Bronsteen

Goldstein & Howe, P.C.

4607 Asbury Pl., NW

Washington, DC 20016

Harvey A. Isaacs

Robert T. Stack

Tompkins & Davidson, LLP

1515 Broadway — 43rd Floor

New York, NY 10036

February 19, 2003

Laurence H. Tribe

(Counsel of Record)

Charles Fried

1575 Massachusetts Ave.

Cambridge, MA 02138

(617) 495-4621

James S. O’ Kelly

Alan Goggins

Barnes, Richardson & Colburn

475 Park Avenue South

New York, NY 10016

APPENDIX

ie egies

ern

UNITED STATES SHOE CORPORATION,

Plaintiff- Appellee,

UNITED STATES,

Defendant-Appellant.

No. 98-1574

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

296 F.3d 1378; 2002 U.S. App. LEXIS 14776;

2002-2 U.S. Tax Cas. (CCH) P70,186;

90 A.F.T.R.2d (RIA) 5276

July 23, 2002, Decided

SUBSEQUENT HISTORY:

Rehearing En Banc Denied October 22, 2002, Reported at:

2002 U.S. App. LEXIS 23176.

PRIOR HISTORY:

Appealed from: United States Court of International Trade.

Judge Jane A. Restani. United States Shoe Corp. v. United

States, 22 Ct. International Trade 613, 1998 Ct. Intl. Trade

LEXIS 76, (1998)

DISPOSITION: REVERSED.

COUNSEL:

James S. O'Kelly, Barnes, Richardson & Colburn, of New

York, New York, argued for plaintiff-appellee. With him on

the brief were Harvey A. Isaacs and Robert T. Stack,

Tompkins & Davidson, LLP, of New York, New York. Of

counsel on the brief were Alan Goggins and Kevin J. Sulli-

van, Barnes, Richardson & Colburn.

Jeffrey A. Belkin, Trial Attorney, Commercial Litigation

Branch, Civil Division, Department of Justice, of Washing-

ton, DC, argued for defendant-appellant. With him on the

brief were Robert D. McCallum, Jr., Assistant Attorney

General; David M. Cohen, Director; Jeanne E. Davidson,

Deputy Director; and Todd M. Hughes, Assistant Director.

Of counsel on the brief was Richard McManus, Office of

the Chief Counsel, United States Customs Service, of

Washington, DC. Of counsel was Lara Levinson, Attorney,

Commercial Litigation Branch, Civil Division, Department

of Justice, of Washington, DC.

John J. Galvin, Galvin & Mlawski, of New York, New

York, for amicus curiae Arbon Steel & Service Co.

John M. Peterson, Neville Peterson LLP, of New York,

New York, for amici curiae Totes-Isotoner, Inc., et al. With

him on the brief were George W. Thompson, Michael K.

Tomenga, and Maria E. Celis.

Barry E. Cohen, Crowell & Moring LLP, of Washington,

DC, for amicus curiae E.I. Du Pont de Nemours & Co.

JUDGES:

Before MAYER, Chief Judge, RADER and BRYSON, Crr-

cuit Judges.

OPINION BY:

MAYER

OPINION:

MAYER, Chief Judge.

The United Stzies appeals the judgment of the Court of In-

ternational Trade granting United States Shoe Corporation's

motion for payment of interest on its refund of the Harbor

Maintenance Tax. United States Shoe Corp. v. United States,

22 C.L.T. 613, 20 LT.R.D. (BNA) 1703 (Ct. Int'l Trade 1998).

Because the payment of interest is not mandated by statute or

the Constitution, we reverse.

Background

The Harbor Maintenance Tax was enacted by Congress as

part of the Water Resources Development Act of 1986. 26

U.S.C. §§ 4461-4462 (2000). It levied a 0.125 percent ad valo-

rem tax on commercial cargo for any port use. /d. § 4461(b). In

1995, the Court of International Trade decided that the tax im-

Posed on exports was unconstitutional because it violated the

Export Clause's mandate that "no Tax or Duty shall be laid on

Articles exported from any State," U.S. Const. art. I, § 9, cl. 5.

See United States Shoe Corp. v. United States, 19 C.L.T. 1284,

907 F. Supp. 408 (Ct. Int'l Trade 1995). The court then decided

that in addition to a refund of the tax payment, interest was due

pursuant to 28 U.S.C. § 2411. United States Shoe Corp. y.

United States, 20 C.I.T. 206 (Ct. Int'l Trade 1996). The award

On appeal, this court agreed that the tax was unconstitu-

tional, United States Shoe Corp. v. United States, 114 F.3d

1564 (Fed. Cir. 1997), and the Supreme Court affirmed, stating

that the tax "is not a fair approximation of services, facilities, or

benefits furnished to exporters, and therefore does not qualify

as a permissible user fee," United States v. United States Shoe

Corp., 523 U.S. 360, 363, 140 L. Ed. 2d 453, 118 S. Ct. 1290

(1998). The stay on the payment of interest dissolved, and pur-

suant to its 1996 judgment, the Court of International Trade

awarded U.S. Shoe interest. The United States asks that we re-

verse the judgment. We have jurisdiction pursuant to 28 U.S.C.

§ 1295(a)(5).

Discussion

We review statutory interpretation by the Court of Interna-

tional Trade without deference. Saarstahl AG v. United States,

78 F.3d 1539, 1542 (Fed. Cir. 1996). Constitutional interpreta-

tion is also a question of law, which we review de novo. Flor-

ida Sugar Mktg. & Terminal Ass'n, Inc. v. United States, 220

F.3d 1331, 1333 (Fed. Cir. 2000). A court may fashion equita-

ble remedies, but it may not abuse its discretion in doing so.

Massie v. United States, 226 F.3d 1318, 1321 (Fed. Cir. 2000).

An equitable remedy here must not be (1) clearly unreasonable,

arbitrary or fanciful or (2) based on an erroneous conclusion of

law. Institut Pasteur & Genetic Sys. Corp. v. Cambridge Bio-

tech Corp., 186 F.3d 1356, 1369 (Fed. Cir. 1999).

Interest may only be recovered in a suit against the gov-

ernment if there has been a clear and express waiver of sover-

eign immunity by contract or statute, or if interest is part of

compensation required by the Constitution. Library of Con-

gress v. Shaw, 478 U.S. 310, 311, 92 L. Ed. 2d 250, 106 S. Ct.

2957 (1986); Boston Sand & Gravel Co. v. United States, 278

U.S. 41, 47, 73 L. Ed. 170, 49 S. Ct. 52 (1928). U.S. Shoe ar-

gues that interest is due on its payment of the Harbor Mainte-

nance Tax under (1) statutory provisions providing for the

payment of interest, (2) the Takings and Export Clauses of the

Constitution, and (3) the discretionary power of a court to fash-

ion equitable remedies.

The government argues that the Court of International

Trade erred in awarding U.S. Shoe interest because the United

States has not expressly consented to such an award, relying on

International Business Machines Corp. v. United States, 201

F.3d 1367, 1374 (Fed. Cir. 2000). We agree. IBM looked to the

Statutes which waived immunity to pay interest and concluded

that neither a tax related statute, 28 U.S.C. § 2411, nor customs

related statutes, 28 U.S.C. § 2644 and 19 U.S.C. § 1505, per-

mitted the award. /d.

First, 28 U.S.C. § 2411 provides: "In any judgment of any

court rendered ... for any Overpayment in respect of any inter-

nal-revenue tax, interest shall be allowed from the date of the

payment" /BM held that the Harbor Maintenance Tax statute,

26 U.S.C. § 4462, expressly prohibited the application of sec-

tion 2411 because it is a tax law, and not a customs law. 201

F.3d at 1372. Section 4462(f)(1) states that "all administrative

and enforcement provisions of customs laws and regulations

shall apply .. as if such tax were a customs duty." "Administra-

tion and enforcement" encompass the "assessment and collec-

tion of tax payments and issuance of refunds and interest on

those refunds." 201 F.3d at 1372. Because section 2411 does

not apply to refunds of the tax, id. at 1373, the Court of Interna-

tional Trade improperly awarded U.S. Shoe interest under it.

Second, 28 U.S.C. § 2644 provides for post-summons in-

terest for claims that invoke the Court of International Trade's

jurisdiction under 28 U.S.C. § 1581(a). For review under this

subsection, a party must have filed a protest under section 515

of the Tariff Act of 1930. 28 U.S.C. § 1581(a) (2000). In IBM,

section 1581(a) jurisdiction was not invoked because IBM did

not file a customs protest; therefore section 2644 interest could

not be awarded. 201 F.3d at 1374. Instead, jurisdiction in IBM

arose under section 1581(i), the residual jurisdiction provision.

Id. Likewise in this case, the Supreme Court held that jurisdic-

_ tion was proper under section 1581(i), U.S. Shoe, 523 U.S. at

365, thereby prohibiting an award of section 2644 interest.

Third, 19 U.S.C. § 1505 provides for prejudgment interest,

and states in relevant part that "interest on excess moneys de-

posited shall accrue ... from the date the importer ... deposits

estimated duties, fees, and interest .. to the date of liquidation

or reliquidation of the applicable entry or reconciliation [of the

imports]." 19 U.S.C. § 1505(c) (emphases added). IBM held

that section 1505(c) does not apply to exports because it speaks

only to imports and declined to rewrite the "Congressional en-

actment to make it fit a case for which it was clearly not in-

tended." 201 F.3d at 1374.

U.S. Shoe and amicus argue that IBM's interpretation is too

restrictive, and that section 1505(c) should apply to exports as

well as imports. They rely by analogy on the Supreme Court's

holding that review of the Harbor Maintenance Tax on exports

could be heard under the Court of International Trade's jurisdic-

tional statute, section 1581(i), referring only to imports: "True,

§ 1581(i) does not use the word ‘exports.’ But that is hardly

surprising in view of the Export Clause, which confines cus-

toms duties to imports." U.S. Shoe, 523 U.S. at 366. U.S. Shoe

urges that "exports" be read into section 1505(c) also. The

Court, however, was reviewing the entire statute, and the tax on

imports provided a sufficient basis for jurisdiction because the

"HMT statute, although applied to exports here, does apply

equally to imports." Jd. We believe the Court's reasoning 1s

sound for the purpose of establishing jurisdiction, but an insuf-

ficient basis upon which sovereign immunity may be waived in

light of the "Supreme Court's mandate that Congress must ex-

pressly consent to an award of interest." JBM, 201 F.3d at 1374.

II.

The government also argues that the Constitution does not

mandate the payment of prejudgment interest. We agree. The

Harbor Maintenance Tax was not a taking, but a violation of

the Export Clause, for which no prejudgment interest is due. If

not granted by statute, the Supreme Court has held only the

Fifth Amendment of the Constitution to mandate the payment

of interest. Shaw, 478 U.S. at 317 n.5;,Smyth v. United States,

302 U.S. 329, 353-54, 82 L. Ed. 294, 58 S. Ct. 248 (1937);

Boston Sand & Gravel, 278 U.S. at 47. The Fifth Amendment

states that private property shall not be "taken for public use,

without just compensation." U.S. Const. amend. V. The princi-

ple that the "just compensation" language includes the payment

of interest from the time of the taking is long standing. Sea-

board Air Line Ry. Co. v. United States, 261 U.S. 299, 306, 67

L. Ed. 664, 43 S. Ct. 354 (1923) ("The requirement that ‘just

compensation’ shall be paid is comprehensive ... and no specific

command to include interest is necessary when interest or its

equivalent is a part.of such compensation.").

U.S. Shoe argues that the Harbor Maintenance Tax was a

taking in violation of the Fifth Amendment because it was an

unlawful confiscation of its property. We do not agree. The

government's act of taxation here was not a per se taking of

private property. United States v. Sperry Corp., 493 U.S. 52,

62 n.9, 107 L. Ed. 2d 290, 110 S. Ct. 387 (1989) (considering

and rejecting the view that money is private property that can

be physically occupied by the government: "Unlike real or per-

sonal property, money is fungible."). Nor is the tax a regulatory

taking: "Regulatory actions requiring the payment of money are

not takings." Commonwealth Edison Co. v. United States, 271

F.3d 1327, 1339 (Fed. Cir. 2001) (en banc) (relying on the rea-

soning of five justices in Eastern Enterprises v. Apfel, 524 U.S.

498, 141 L. Ed. 2d 451, 118. Ct 2131 (1998)); Atlas Corp. v.

United States, 895 F.2d 745, 756 (Fed. Cir. 1990) ("Requiring

money to be spent is not a taking of property.").

A "reasonable user fee is not a taking if it is imposed for the

reimbursement of the cost of government services." Sperry, 493

U.S. at 63. The Harbor Maintenance Tax was imposed to "de-

fray the cost of harbor development and maintenance." U.S.

Shoe, 523 U.S. at 370. In Pace v. Burgess, 92 U.S. Sa, 315, 23

L. Ed. 657 (1875), a stamp fee placed on packages of tobacco

for export was upheld because it "bore no Proportion whatever

to the quantity or value of the package on which it was affixed"

and was not excessive. Here, the fee was declared unconstitu-

tional because it was Proportional to the value of the exported

goods and not the actual use of the harbors. U.S. Shoe, 523 U.S.

at 369 ("The connection between a service the Government

renders and the compensation it receives for that service must

be closer than is present here ... the extent and manner of port

use depend on factors such as the size and tonnage of a vessel,

‘the length of time it spends in port, and the services it re-

quires."). But it was not excessive. Under Sperry, a user fee of

1.5 percent "does not qualify as a ‘taking’ by any standard of

excessiveness." 493 U.S. at 62. Similarly, purely by its amount,

0.125 percent, 26 U.S.C. § 4461(b) (2000), the Harbor Mainte-

nance Tax must be considered reasonable. Because "the Tak-

ings Clause is less restrictive than the Export Clause," U.S.

Shoe, 523 U.S. at 369, and the tax would be sustained if it

"fairly matched the exporters’ use of port services and facili-

ties," id. at 370, we conclude that the tax did not rise to the

level of a taking.

U.S. Shoe also contends that the government's retention of

the interest income earned on the tax revenue is a continuing

taking. But U.S. Shoe has not established a private property

right in the interest generated by the payment of the tax. See

Eastern Enterprises, 524 U.S. at 543 (Kennedy, J., concurring).

The Harbor Maintenance Tax did not "appropriate, transfer, or

encumber an estate in land ..., a valuable interest in an intangi-

ble ..., or even a bank account or [its associated] accrued inter-

est." Jd. at 540. For the accrued interest to rise to the level of

private property, the principal must be held in an identified pri-

vate account. See Phillips v. Washington Legal Found., 524

U.S. 156, 164, 141 L. Ed. 2d 174, 118 S. Ct. 1925 (1998) (stat-

ing that client fees held in trust accounts constituted "private

property"). And then any interest accrued belongs to the owner

of the principal. Jd. at 172 (holding that the "interest income

generated by funds held in IOLTA accounts [client accounts} is

the 'private property’ of the owner of the principal"). The tax

revenue here was not held by the government as property of

U.S. Shoe. It became the property of the Treasury upon pay-

ment, and was appropriated to the Harbor Maintenance Trust

Fund along with user fees on imports, passenger cruise ships,

and domestic shipments, and other statutory fees. 26 U.S.C. §

9505(b) (2000). Accordingly, the interest earned on the tax

payments is also the property of the government. And its use

for harbor maintenance expenditures, id. § 950S(c), cannot be a

taking.

U.S. Shoe also argues that the Harbor Maintenance Tax was

so arbitrary that it was an egregious violation of due process,

and therefore a taking. See Brushaber v. Union Pac. R.R. Co.,

240 U.S. 1, 24-25, 60 L. Ed. 493, 36 S. Ct. 236 (1916) ("Al-

though there was a seeming exercise of the taxing power, the

act complained of was so arbitrary as to constrain to the con-

clusion that it was not the exertion of taxation but a confisca-

tion of property, that is, a taking ...."). We do not agree. The tax

was not arbitrary because it served the rational purpose of

maintaining the ports. See U.S. Shoe, 114 F.3d at 1579 (Mayer,

C.J., dissenting) ("Congress mandated that fees collected from

the HMT be used only for commercial navigation projects.");

see also Moore v. City of E. Cleveland, Ohio, 431 U.S. 494,

547, 52 L. Ed. 2d 531, 97 S. Ct. 1932 (1977) (White, J., dis-

senting on other grounds) (statutes restrictive of liberty must

have "an ascertainable purpose and represent a rational means

to achieve that purpose ...."). The Court struck down the tax

because it was improperly calculated, not because its purpose

was unascertainable or nefarious. U.S. Shoe, 523 U.S. at 363,

370 (The tax was not "a fair approximation of services, facili-

ties, or benefits furnished to the exporters," but "this does not

mean that exporters are exempt from any and all user fees de-

signed to defray the cost of harbor development and mainte-

nance."). Moreover, the tax cannot be a taking because the Su-

preme Court determined that the tax violated the Export Clause,

not the Takings Clause. Jd. at 368 ("Those decisions [discuss-

ing user fees] [including Sperry, a takings case] involved con-

Stitutional provisions other than the Export Clause, however,

and thus do not govern here.").

In the alternative, U.S. Shoe argues that the Export Clause

mandates the payment of interest. It cites Cyprus Amax Coal

Co. v. United States, 205 F.3d 1369, 1373 (Fed. Cir. 2000), that

a claim against the government for a violation of the Export

10a

Clause is money mandating, and requires "a return of money

unlawfully exacted." Cyprus Amax, however, was premised on

the award of money damages to U.S. Shoe "equaling the

amount exacted under the HMT" only, id. at 1374; U.S. Shoe,

114 F.3d at 1577, and does not discuss, nor stand for the propo-

sition that interest must be awarded.

U.S. Shoe also relies on Hatter v. United States, 38 Fed. Cl.

166 (1997), to assert that violations of constitutional clauses

other than the Takings Clause require the payment of interest.

In Hatter, the Court of Federal Claims decided that judges were

due interest on money owed because of an Article II] Compen-

sation Clause violation. /d. at 183. See also Hatter v. United

States, 64 F.3d 647, 653 (Fed. Cir. 1995), aff'd in part, rev'd in

part, Hatter v. United States, 532 U.S. 557, 149 L. Ed. 2d 820,

121 S. Ct. 1782 (2001) (affirming that discriminatory taxes im-

posed on sitting judges violated the Compensation Clause). The

interest issue, however, was not appealed by the government,

and the final judgment of the Court of Federal Claims 13 not

binding upon us. Aleman Food Servs., Inc. v. United States,

994 F.2d 819, 822 (Fed. Cir. 1993). Even if interest is man-

dated under the Compensation Clause, the reasoning upon

which this conclusion is based does not extend to the Export

Clause.

Under the Compensation Clause, "Judges ... shall, at stated

Times, receive for their Services, a Compensation, which shall

not be diminished during their Continuance in Office." U.S.

Const. art. III, § 1. The construction of the Export Clause dif-

fers from the Compensation Clause. The Export Clause is pro-

hibitive, "No Tax or Duty shall be laid on Articles exported

from any State," U.S. Const. art. I, § 9, cl. 5, while the Com-

pensation Clause requires that judges shall receive "Compensa-

tion." Such "Compensation" must be paid at "stated Times,"

indicating that if it is not paid when due, interest should be paid

to compensate for the delay. Hatter, 38 Fed. Cl. at 183. And

the rationale, that the government should pay interest if it un-

a, ee ee ee

tt << - << UTE TEE — nnn eget

———— SCC SSS

lla

unlawfully withholds judges' pay to maintain the separation of

powers, does not apply to the Export Clause. /d.

Like the Export Clause, the Takings Clause is also prohibi-

tive, "nor shall private property be taken for public use," but it

is coupled with the restorative clause, "without Just compensa-

tion." U.S. Const. amend. V. The Export Clause's prohibition

lacks similar remedial language. U.S. Shoe asserts, neverthe-

less, that the Supreme Court's reasoning in Monongahela Navi-

gation Co. v. United States, 148 U.S. 312, 326, 37 L. Ed. 463,

13 S. Ct. 622 (1893), reading "compensation" to require tle

"full and perfect equivalent for the property taken," and its sub-

sequent interpretation that such compensation requires the

payment of interest, Seaboard Air Line, 261 U.S. at 305-06,

applies to the Export Clause. And because a violation of the

Export Clause requires a return of the money excised, its per-

fect equivalent entails both principal and interest. We are un-

willing to import the Court's interpretation of "Compensation"

into the Export Clause where the word "compensation" does

not appear. Instead, we prefer to "follow the express textual

command of the Export Clause." United States v. Int'l Bus.

Machs., 517 U.S. 843, 862, 135 L. Ed. 2d 124, 116 S. Ct. 1793

(1996); see also id. at 857 ("We have good reason to hesitate

before adopting the analysis of our recent Import-Export Clause

cases into our Export Clause jurisprudence. ... Meaningful tex-

tual differences exist and should not be overlooked.").

Finally, the government argues that principles of equity are

insufficient to waive the government's sovereign immunity. We

agree. The equitable doctrine of restitution and unjust enrich-

ment are poweriul remedies of fairness. But true to the "no-

interest rule," under which a waiver of sovereign immunity for

an award of interest must be affirmative and unequivocal,

Shaw, 478 U.S. at 311, the foregoing analysis demonstrates that

a judge-fashioned remedy here would be an abuse of discretion.

See JBM, 201 F.3d at 1374; Kalan, Inc. v. United States, 944

aaa ea eri re teers reel

12a

F.2d 847, 850 (Fed. Cir. 1991) ("Neither we nor the Court of

International Trade can supply by creative interpretation the

necessary clear direction [to award interest] that Congress omit-

ted.").

Conclusion

Accordingly, the judgment of the Court of International

Trade is reversed.

13a

UNITED STATES SHOE CORP.

Plaintiff,

THE UNITED STATES

Defendant.

Court No. 94-1 1-00668

UNITED STATES COURT OF INTERNATIONAL TRADE

20 C.LT. 206; 1996 Ct. Inil. Trade LEXIS 45; SLIP OP. 96-32

February 7, 1996, Dated

DISPOSITION:

Interest on HMT payments challenged pursuant to 28

U.S.C. § 1581(i) may be awarded pursuant to 28 U.S.C. §

2411.

COUNSEL:

Seigel, Mandell & Davidson, P.C. (Brian S. Goldstein, Paul

A. Horowitz and Laurence M. Friedman) for plaintiff.

Frank W. Hunger, Assistant Attorney General, David M.

Cohen, Director, Jeanne E. Davidson, Assistant Director,

Commercial Litigation Branch, Civil Division, United

States Department of Justice (Elizabeth Newsom), Richard

McManus, Office of the Chief Counsel, United States Cus-

toms Service, of counsel, for defendant.

Baker & McKenzie (William D. Outman, II and Kevin M.

O'Brien) for Brown-Forman Corporation, Fisher Controls,

14a

International Co., Hewlett-Packard Corporation, Interna-

tional Business Machines Corporation, Minnesota Mining

& Manufacturing Corporation and Seagate Technology

Corporation, amici curiae.

Barnes, Richardson & Colburn (James R. O'Kelly, Robert

E. Burke, Matthew T. McGrath, Lawrence M. Friedman,

Christopher E. Pey and Cindy H. Chan) for Firmenich, Inc.,

Amoco Chemical Company and Polaroid Corporation,

amici curiae.

Coudert Brothers (Steven H. Becker, Charles H. Critchlow

and Claire R. Kelly) for Texaco Refining and Marketing,

Inc., American Natural Soda Ash Corp., United Export

Corp., ABRO Industries, GSI Exim America, inc., Vitol

S.A., Inc., M-C International D/B/A/ McLane Group inter-

national L.P., Bridgestone/Firestone Inc., Dorland Man-

agement, Inc., FAI Trading Co., Star Enterprises, Inc.,

Vista Chemical Co., Champion International Corp., Cham-

pion Export Corp. and ISP Technologies, Inc., amici curiae.

Crowell & Moring (Barry E. Cohen) for E.I. du Pont de

Nemours & Co., amicus curiae.

Dorsey & Whitney P.L.L.P. (John B. Rehm and Munford

Page Hall, II) for New Holland North America, Inc., amicus

curiae.

Grunfeld, Desiderio, Lebowitz & Silverman, L.L.P. (Steven

P. Florsheim and Erik D. Smithweiss) for Boise Cascade

Corporation, Etonic Inc., Germain-Webber Lumber Co.,

Inc., International Veneer Co., Mondial International Corp.

and The Heil Co., amici curiae.

LeBoeuf, Lamb, Greene & Macrae, L.L.P. (Melvin S.

Schwechter, John C. Cleary and Wendy L. Klunk) for

Aluminum Company of America, Alcoa International, S.A.,

Alcoa Inter-America, Inc., Alcoa Memory Products, Inc.,

H-C Industries, inc. and The Stolle Corporation, amici cu-

riae.

lSa

Irving A. Mandel, Thomas J. Kovarcik, Steven R. Sosnov

and Jeffrey H. Pfeffer, of counsel for Allied Textiles Sales

Company, Sheftel International Inc., Fab-Tech Inc., Sirex,

Ltd., Debois Textiles, Inc., Capital Textiles, Inc., M. Ko-

pepel Company, Dumont Export Corporation, United Over-

seas Corporation, Regent Corporation and Muran Univer-

sal, Inc., amici curiae.

McKenna & Cuneo (Peter Buck Feller, Joseph F. Dennin,

Michael K. Tomenga, Lawrence J. Bogard and Brian

O'Shea) for Swisher International, Inc., amicus curiae.

Neville, Peterson & Williams (John M. Peterson, George

W. Thompson and James A. Marino) for Aris-Isotoner,

Inc., Berwick Industries, Inc., Chevron Chemical Company,

Inc., Chevron Chemical International Sales, Inc., Chevron

International Oil Company, Chevron Overseas Petroleum,

Inc., Chevron U.S.A., Inc., Fieldston Clothes, Inc., General

Glass International Corporation, Microsoft Corporation,

The Pillsbury Company, Rhone-Poulenc, Inc., Uniroyal

Chemical Company, Inc., Xerox Corporation, Xerox Cor-

poration, Americas Operations Division, Xerox Corpora-

tion, Southern California Manufacturing Operations Divi-

sion and Xerox International Partners, amici curiae.

Rode & Oualey, Patrick D. Gill and John S. Rode, of coun-

sel, for General Chemical Corporation, Sumitomo Corpora-

tion of America, Newell International, Siemens Energy &

Automation, Inc., Siemens Power Corp., Siemens Medical

Systems, Inc., Siemens Transportation Systems, Inc., Sie-

mens Solar Industries and Unisys Corporation, amici cu-

riae.

JUDGES:

Jane A. Restani, Judge

l6a

OPINION BY:

Jane A. Restani

OPINION:

MEMORANDUM OPINION

RESTANI, Judge: The judgment in this action awarded

plaintiff $ 8,281.87, "together with interest and costs as pro-

vided by law." U.S. Shoe Corp. v. United States, 924 F. Supp.

1191, 1995 Ct. Intl. Trade LEXIS 247, Slip Op. 95-197 (Dec.

4, 1995); see also U.S. Shoe Corp. v. United States, 907 F.

Supp. 408 (Ct. Int'l Trade 1995). It has come to the court's at-

tention that "interest" is not a matter without controversy and it

cannot be resolved as a simple clerical matter. Since the brief-

ing of this issue, however, notice of appeal has been filed and

the court lacks jurisdiction to alter the judgment.

Because the issue has been fully briefed under the cap-

tioned case by the attorneys involved in the numerous cases

stayed hereunder, because the issue is relevant to the lifting of

stays as to such cases, and for administrative convenience, the

court will address this matter under this caption. At the outset,

the court notes that in the absence of express congressional

consent, the United States is immune from an interest award.

Library of Congress v. Shaw, 478 U.S. 310, 314, 92 L. Ed. 2d

250, 106 S. Ct. 2957 (1986). Interest is, however, available to

claimants when Congress permits such interest to be awarded

by statute. Id. at 316.

Plaintiff and amici contend that interest on plaintiff's pay-

ments of the Harbor Maintenance Tax ("HMT") is expressly

provided for by 28 U.S.C. § 2411 (1988). That statute provides,

in relevant part:

In any judgment of any court rendered (whether against

the United States, ...) for any overpayment in respect of any

internal-revenue tax, interest shall be allowed at the over-

payment rate established under [26 U.S.C. § 6621] upon the

amount of the overpayment, from the date of the payment

ee lp, Le ef OR

DEAE NA ARS CRATING hee CERES RGEC Reyneneey

17a

or collection thereof to a date preceding the date of the re-

fund check by not more than thirty days, such date to be de-

termined by the Commissioner of Internal Revenue. The

Commissioner is authorized to tender by check payment of

any such judgment, with interest as herein provided, at any

time after such judgment becomes final. ...

The Supreme Court has recognized that section 2411 con-

stitutes an express waiver of sovereign immunity with respect

to interest and expressly authorizes prejudgment and postjudg-

ment interest payable by the United States in tax-refund cases.

Sahw, 478 U.S. at 218 n.6. Furthermore, section 241 1 applies

when taxes are improperly and illegally collected. Sterns v.

Clauson, 122 F. Supp. 795, 797 (D. Me. 1954).

This court has held that the HMT on exports constitutes a

tax prohibited by the Export Clause of the Constitution. U.S.

Shoe Corp., 907 F. Supp. at 418. The HMT is a tax provided

for by the Internal Revenue Code. See 26 U.S.C. §§ 4461-62

(1994).

Congress, however, has expressly provided in the Water

Resources Development Act of 1986, 26 U.S.C. §§ 4461-62,

that the HMT is to be treated as a customs duty for the purposes

of administration and enforcement as well as jurisdiction. See

id. § 4462(f)(1)-(2). Additionally, section 4462(f) (3), Title 26,

United States Code, provides, in relevant part, that "the tax im-

posed by this subchapter shall not be treated as a tax for pur-

poses of subtitle for any other provision of law relating to the

administration and enforcement of internal revenue taxes." /d §

4462(f)(3) (emphasis added).

The court finds, however, that any monetary relief granted

by the court would not constitute either "administration" or "en-

forcement" of the HMT as envisioned by 26 U.S.C. §

4462(f)(3). That section is limited to matters of routine admini-

stration and enforcement by an agency. The legislative history

of the HMT statute explains that the underlying purpose of both

section 4462(f)(1) and (3) was to confirm which agency was to

—— — oa —_

18a

have responsibility for collecting and processing HMT pay-

ments. See S. Rep. No. 228, 99th Cong., Ist Sess. 10 (1986),

reprinted in 1986 U.S.C.C.A.N. 6705, 6714-15 (stating Cus-

toms' strong presence at ports of entry and experience at ap-

praising imported merchandise made it appropriate for Cus-

toms, rather than Internal Revenue Service to collect, adminis-

ter, and enforce HMT). The court also notes that while Con-

gress expressly sought to preclude application of the adminis-

trative provisions of the Internal Revenue Code in the collec-

tion and processing of the HMT, section 2411 is within Title 28

of the United States Code, which governs the judiciary and ju-

dicial procedure, rather than an administrative provision within

Title 26 (the Internal Revenue Code).

Furthermore, a money judgment for customs duties pro-

tested by ordinary administrative and judicial procedures would

include interest calculated in a manner similar to that provided

for in 28 U.S.C. § 2411. See 19 U.S.C. § 1520(d) (1988); 19

U.S.C. § 1505(c) (1994); 28 U.S.C. § 2644 (1988). Defendant

correctly maintains that these statutory provisions, however, do

not apply to payments of the HMT where no decision by Cus-

toms has been made or no liquidation has occurred. Defendant

further maintains that as section 2411 requires the Commis-

sioner of Internal Revenue to take an active role in tendering

and setting the date of payment, Congress could not have in-

tended section 2411 to apply to payments of the HMT. The

court notes that the issue of how payments of any type are to be

made is one of administration. Under the statutory scheme,

Customs, not the Commissioner, is required to collect pay-

ments of the HMT. The court finds that requiring the Commis-

sioner, rather than Customs, to tender and set the date of pay-

ment under a strict literal reading of section 2411 or obviating

the requirement of interest because Customs administers the

statute but did not provide a decision or liquidation, would be

illogical and contrary to legislative intent. See Witco Chem.

Corp. v. United States, 742 F.2d 615, 619 (Fed. Cir. 1984) ("An

absurd construction of a statutory provision should be

19a

avoided."); see also Chevron, U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 843 n.9, 81 L. Ed. 2d 694,

104 S. Ct. 2778 (1983) ("The judiciary is the final authority on

issues of statutory construction and must reject administrative

constructions which are contrary to clear congressional in-

tent.").

Reading the applicable statutes in pari materia and finding

defendant's interpretation of 28 U.S.C. § 2411 and 26 U.S.C. §

4462 as read together unreasonable, the court must construe the

Statutes, keeping in mind that "all statutes must be construed in

light of their purpose." Wassenaar y. Office of Personnel

Mgmt., 21 F.3d 1090, 1096 (Fed. Cir. 1994) (quoting Best

Power Technology Sales Corp. v. Austin, 984 F.2d 1172, 1175

(Fed. Cir. 1993)); see also Marlowe v. Bottarelli, 938 F.2d 807,

813 (1991) (stating rule that "whenever possible courts con-

Strue statutes and regulations in pari materia"). The court finds

that in actions brought pursuant to 28 U.S.C. § 1581(i) (1988 &

Supp. V 1993), Congress intended to provide interest on pay-

ments of the HMT for exports pursuant to section 241 1, but

that related administrative actions would be performed by Cus-

toms.

Jane A. Restani

JUDGE

Dated: New York, New York, This 7th day of February,

1996.

20a

UNITED STATES SHOE CORP.,

Plaintiff,

V. .

UNITED STATES, _

Defendant

Court No. 94-11-00668

UNITED STATES COURT OF INTERNATIONAL

TRADE

19 C.LT. 1284; 907 F. Supp. 408; 1995 Ct. Intl. Trade

LEXIS 220; SLIP OP. 95-173

October 25, 1995, Decided 4

COUNSEL:

Siegel, Mandell & Davidson, P.C. (Brian S. Goldstein, Ste-

ven S. Weiser, Laurence M. Friedman and Paul A.

Horowitz) for plaintiff.

Frank W. Hunger, Assistant Attorney General, David M.

Cohen, Director, Jeanne E. Davidson, Assistant Director,

Commercial Litigation Branch, Civil Division, United

States Department of Justice (John K. Lapiana), Richard

McManus, Office of the Chief Counsel, United States Cus-

toms Service, and Martin Cohen, Office of the General

Counsel, United States Army Corps of Engineers, of coun-

sel, for defendant.

Baker & McKenzie (William D. Outman, II, Thomas P.

Ondeck and Kevin M. O'Brien) for Brown-Forman Corpo-

ration, Fisher Controls International Co., Hewlett-Packard

2la

Corporation, International Business Machines Corporation,

Minnesota Mining & Manufacturing Corporation and Sea-

gate Technology Corporation, amici curiae.

Barnes, Richardson & Colburn (Robert E. Burke, Christo-

pher E. Pey, Mark T. Wasden and Cindy H. Chan) for Po-

laroid Corporation and Amoco Chemical Company, amici

curiae.

Coudert Brothers (Steven H. Becker, Charles H. Critchlow

and Claire R. Kelly) for Texaco Refining and Marketing

Inc., American Natural Soda Ash Corp., United Export

Corp., ABRO Industries, GSI Exim America, Inc., Vitol

S.A., Inc., M-C International D/B/A McLane Group Inter-

national L.P., Bridgestone/Firestone Inc., Dorland Man-

agement, Inc., FAI Trading Co., Star Enterprises, Inc.,

Vista Chemical Co., Champion International Corp., Cham-

pion Export Corp. and ISP Technologies, Inc., amici curiae.

Crowell & Moring (Barry E. Cohen and Mark Tesone) for

E. I. du Pont de Nemours & Co., amicus curiae.

deKieffer, Dibble & Horgan (J. Kevin Horgan), for Arm-

strong World Industries, Inc., amicus curiae.

Dorsey & Whitney P.L.L.P. (John B. Rehm and Munford

Page Hall, II) for New Holland North America, Inc., amicus

curiae.

Grunfeld, Desiderio, Lebowitz & Silverman (Steven P.

Florsheim and Erik D. Smithweiss) for Boise Cascade Cor-

poration, Etonic Inc., Germain-Webber Lumber Co., Inc.,

International Veneer Co., Mondial International Corp. and

The Heil Co., amici curiae.

Katten, Muchin & Zavis (Mark S. Zolno, Lynn S. Baker,

Kirk T. Hartley and Michael E. Roll) for Baxter Healthcare

Corporation, The Nutrasweet Company and Nestle U.S.A..,

Inc., amici curiae.

——— — — _

22a

LeBoeuf, Lamb, Greene & MacRae, L.L.P. (Melvin S.

Schwechter, John C. Cleary and Wendy L. Klunk) for

Aluminum Company of America, Alcoa International, S.A.,

Alcoa Inter-America, Inc., Alcoa Memory Products, Inc.,

H-C Industries, Inc. and The Stolle Corporation, amici cu-

riae.

Irving A. Mandel, Jeffrey H. Pfeffer, Steven R. Sosnov and

Thomas J. Kovarcik, of counsel, for Allied Textiles Sales

Company, Sheftel International Inc., Fab-Tech Inc., Sirex,

Ltd., Debois Textiles, Inc., Capital Textiles, Inc., M. Ko-

pepel Company, Dumont Export Corporation, United Over-

seas Corporation, Regent Corporation and Muran Univer-

sal, Inc., amici curiae.

McKenna & Cuneo (Peter Buck Feller, Joseph F. Dennin,

Michael K. Tomenga, Lawrence J. Bogard and Brian

O'Shea) for Swisher International, Inc., amicus curiae.

Neville, Peterson & Williams (John M. Peterson, George

W. Thompson, Peter J. Allen and James A. Marino) for

Aris-Isotoner, Inc., Berwick Industries, Inc., Chevron

Chemical Company, Inc., Chevron Chemical International

Sales, Inc., Chevron International Oil Company, Chevron

Overseas Petroleum, Inc., Chevron U.S.A., Inc., Fieldston

Clothes, Inc., General Glass International Corporation, Mi-

crosoft Corporation, The Pillsbury Company, Rhone-

Poulenc Inc., Uniroyal Chemical Company Inc., Xerox

Corporation, Xerox Corporation, Americas Operations Di-

vision, Xerox Corporation, Southern California Manufac-

turing Operations Division and Xerox International Part-

ners, amici curiae.

Rode & Qualey, Patrick D. Gill and John S. Rode, of coun-

sel, for General Chemical Corporation, Sumitomo Corpora-

tion of America, Newell International, Siemens Energy &

Automation, Inc., Siemens Power Corp., Siemens Medical

Systems, Inc., Siemens Transportation Systems, Inc., Sie-

ON PAN AS ER SIRE RRM ASST GAIN EEN Gs i orang ha

23a

mens Solar Industries and Unisys Corporation, amici cu-

riae.

JUDGES:

DiCarlo, Chief Judge, Restani, Judge, Musgrave, Judge.

OPINION BY:

DOMINICK L. DiCARLO

OPINION:

OPINION

DiCARLO, CHIEF JUDGE: Article I, Section 9, Clause 5

of the United States Constitution (the "Export Clause") pro-

vides "no Tax or Duty shall be laid on Articles exported from

any State." The question presented is whether the Harbor Main-

tenance Tax, 26 U.S.C. §§ 4461-62 (1988 & Supp. V 1993)

(Internal Revenue Code) [hereinafter "Tax"], when imposed

upon merchandise exported from the United States, violates

this prohibition. The court concludes that it does.

This case comes before the court on cross-motions for

summary judgment pursuant to USCIT Rule 56. The parties

agree there are no material facts in dispute. They also agree that

the court has subject-matter jurisdiction to determine the consti-

tutionality of the Tax.

Congress has given the Court of International Trade jurisdic-

tion over matters arising out of the Tax: "For purposes of de-

termining the jurisdiction of any court of the United States or

any agency of the United States, the tax imposed by this sub-

chapter shall be treated as if such tax were a customs duty." 26

U.S.C. § 4462(f)(2). This language directs that taxes imposed

EEE

24a

upon both imports and exports shall be treated as if they were

customs duties, in other words, as import transactions.

Congress's purpose in centralizing jurisdiction over import

transactions in the Court of International Trade was to dispel

the jurisdictional confusion existing as to the Court of Interna-

tional Trade's predecessor, the Customs Court, and to reflect

the true scope of the court's jurisdiction. See H.R. Rep. No.

1235, 96th Cong., 2d Sess. 47 (1980), reprinted in 1980

U.S.C.C.A.N. 3729, 3758-59. As the legislative history of the

Customs Courts Act of 1980 shows, Congress sought, by per-

mitting a single court to hear these suits, "to eliminate much of

the difficulty experienced by international trade litigants who in

the past commenced suits in the district courts only to have

those suits dismissed for want of subject matter jurisdiction."

H.R. Rep. No. 1235, at 47, 1980 U.S.C.C.A.N. at 3759. Ac-

cordingly, Congress granted the court exclusive jurisdiction

Over any civil action against the United States arising out of

federal laws governing import transactions, because of the

court's "already developed expertise in international trade and

tariff matters." Conoco, Inc. v. United States Foreign-Trade

Zones Bd., 18 F.3d 1581, 1586 (1994). This authority includes

the inherent responsibility to review challenges to the constitu-

tionality of a law within that area of expertise. See 28 U.S.C.

§§ 251, 1331, 1585 (1988) (providing this court with all powers

of U.S. district courts including original jurisdiction over ac-

tions arising under Constitution); see, e.g., 28 U.S.C. §

255(a)(1) (1988) (permitting designation of three-judge CIT

panels to hear and determine constitutional issues). In additier

to the statutory language, the legislative history of the Tax sup-

ports this court's jurisdiction. S. Rep. No. 228, 99th Cong., Ist

Sess. 10 (1986), reprinted in 1986 U.S.C.C.A.N. 6705, 6715.

| Finally, this is not the first case where the court has taken

jurisdiction over matters arising from the Tax; the court re-

cently exercised jurisdiction over claims for restitution of taxes

paid by passenger liners pursuant to the Tax in Carnival Cruise

Lines, Inc. v. United States, 18 CA.T. 1020, 866 F. Supp. 1437

Cs ieeeainiaeteaemiaiiiiiiiecieiiiaiiiiiiaieiilal

ONPG AG DAIS

25a

(1994). In sum, in light of the Tax's plain language, its legisla-

tive history and the Court of International Trade's traditional

role as the proper forum for review of actions governing import

transactions, the court possesses jurisdiction to hear and deter-

mine the constitutionality of the Tax.

Congress established the Tax as part of the Water Re-

sources Development Act of 1986, Pub. L. No. 96-622, 100

Stat. 4082 (codified as amended in scattered titles of U.S.C.)

[hereinafter the "Act"]. While it named the charge imposed

upon port users a "tax," 26 U.S.C. ch. 36, subch. A, this no-

menclature is not necessarily binding on the court, see Fair-

bank v. United States, 181 U.S. 283, 304, 45 L. Ed. 862, 21 S.

Ct. 648 (1901) ("we must regard things rather than names").

The provisions of the Act, including the Tax, are severable.

Water Resources Development Act § 949, 33 U.S.C. § 2304

(1988).

The Tax imposes an ad valorem tax on "any port use" of

federally-maintained navigable waterways. 26 U.S.C. §§ 4461,

4462(a)(2). The statute defines "port use" as "the loading [and]

unloading of commercial cargo [on or] from [] a commercial

vessel at a port," 26 U.S.C. § 4462(a)(1), and "port" as any

channel or harbor open to public navigation that is not an

inland waterway, 26 U.S.C. § 4462(a)(2)(A). The Tax is ap-

plied against imports and exports, and domestic shipments, as

well as passengers. 26 U.S.C. §§ 4461(c)(1), 4462(a)(3)(A).

Presently, the amount of the Tax imposed is 0.125 percent of

the value of the commercial cargo involved. 26 U.S.C. §

4461(b) (Supp. V 1993). This is without regard to the size of

the vessel, the manner or extent of use of port facilities, or the

condition of the particular port. For passengers, the statute cal-

culates value based on the actual charge paid for the transporta-

tion. See 26 U.S.C. § 4462 (a)(5)(B). Further, Congress does

not distinguish among port users or particular ports in expend-

ing funds for harbor maintenance or operations, even though

Or - ee eo oe

26a

some ports or users may contribute the majority of the fees

paid.

The Tax exempts certain cargo and passengers from its

burden. These exemptions include fish or other aquatic animals

not previously landed on shore, ferry passengers, bunker fuel,

ships' stores, oi equipment necessary for operation of a vessel,

bonded commercial cargo entering the United States for tran-

shipment to a foreign country, and any cargo shipped between

the continental United States and Alaska, Hawaii or any U.S.

possession for ultimate consumption at its destination with the

exception of crude oil transported from Alaska. 26 U.S.C. §

4462. The Tax also exempts intraport movement of cargo, rec-

reational and de minimis port use, port use by the U.S. gov-

ernment, and humanitarian and development assistance cargo.

Id. Congress's stated purpose in enacting the Tax was to have

commercial shippers fund the maintenance of U.S. harbors and

ports. See S. Rep. No. 228, at 5, 1986 U.S.C.C.A.N. at 6709; S.

Rep. No. 126, 99th Cong., Ist Sess. 7 (1985), reprinted in 1986

U.S.C.C.A.N. 6639, 6644.

In enacting the Tax, Congress concurrently established the

Harbor Maintenance Trust Fund, 26 U.S.C. § 9505 (1988 &

Supp. V 1993) [hereinafter "Trust Fund"], to carry out the pur-

poses of the Act. Monies collected pursuant to the Tax are

transferred to the Trust Fund for disbursal upon further appro-

priation by Congress in accordance with the Trust Fund's provi-

sions. 26 U.S.C. § 9505(b), (c). Since 1991, Congress has au-

thorized appropriations from the Trust Fund to offset up to 100

percent of the eligible operation and maintenance outlays for

harbors under the Act. Water Resources Development Act of

1990 § 316, 33 U.S.C. § 2238 (Supp. V 1993). Congress did

not limit expenditure of Tax revenues to the U.S. Army Corps

of Engineers, the largest beneficiary of the Trust Fund. Rather,

the Departments of the Treasury and Commerce, and the Na-

tional Oceanic and Atmospheric Administration are also poten-

tial recipients of Tax revenues. 26 U.S.C. § 9505(c); see Office

of Management and Budget, Executive Office of the President,

27a

FY 1996: Budget of the U.S. Government, Appendix, 376, 802

(1995).

Despite the number of agencies eligible to receive funds,

the Trust Fund has been running a yearly surplus since its in-

ception. This surplus burgeoned with the increase in the Tax

from 0.04% to 0. 125%, (Br. of Amicus Amoco Chem. Co., Ex.

A (Second Annual Report to the Congress on the Status of the

Harbor Maintenance Trust Fund For Fiscal Year 1993 5

(1994))) [hereinafter "Second Annual Rep."], and is "on

budget." The practice of listing trust fund revenues on budget

permits them to be included in calculations of the federal

budget deficit. Thus, any monies contributed by such funds to

the budget decreases the Treasury's need to borrow in order to

finance the federal deficit. See H.R. Rep. No. 251 pt. III, 99th

Cong., Ist Sess. 19 (1985) ("the increase in net budget receipts

[provided by the Tax] will reduce the potential Federal budget

deficit by a like amount by providing a new source of user-

related revenues rather than relying completely on general fund

appropriations"). As of 1994, the government had collected

over 500 million dollars from exports alone. (See Br. of Ami-

cus Polaroid Corp., Ex. A (First Annual Report to Congress on

the Status of the Harbor Maintenance Trust Fund Fiscal Years

1987-1992 4 (1993))) [hereinfater "First Annual Rep."]; Second

Annual Rep. at 3.

Plaintiff paid the Tax on articles exported for the period

April | through June 30, 1994. It now sues for recovery of

those monies, claiming imposition of the Tax violates the Ex-

port Ciause.

An act of Congress is presumed to be constitutional. Fair-

bank, 181 U.S. at 285. Any excess in the exercise of legislative

power or conflict with the restrictions imposed by the funda-

mental law should be clear before the court overturns an en-

actment of the legislature. /d. Yet, as Chief Justice Marshall

expounded in Marbury vy. Madison, 5 U.S. (1 Cranch) 137, 2 L.

28a

Ed. 60 (1803), "the particular phraseology of the constitution of

the United States confirms and strengthens the principle, sup-

posed to be essential to all written constitutions, that a law re-

pugnant to the constitution is void; and that courts, as well as

other departments, are bound by that instrument." Jd. at 180.

Defendant contends that the Tax is a valid exercise of Con-

gress's constitutional authority to regulate foreign and interstate

commerce, and does not implicate its taxing powers. According

to defendant, although the Export Clause restrains those pow-

ers, the Clause cannot circumscribe Congress's unlimited ca-

pacity to regulate commerce.

The court concludes the power to regulate commerce does

not eclipse the Export Clause. Although Congress can adopt the

methods it deems necessary to accomplish its goals pursuant to

the regulation of commerce, this authority is limited by other

provisions of the Constitution. United States v. Lopez, 514

U.S. 549, 131 L. Ed. 2d 626, 115 S. Ct. 1624, 1627 (1995)

(providing that commerce power “is complete in itself, may be

exercised to its utmost extent, and acknowledges no limitations,

other than are prescribed in the constitution") (quoting Gibbons

v. Ogden, 22 U.S. (9 Wheat.) 1, 196, 6 L. Ed. 23 (1824)); North

Am. Co. v. S.E.C., 327 U.S. 686, 704-05, 90 L. Ed. 945, 66 S.

Ct. 785 (1946) (noting Congress's commerce powers are lim-

ited by express provisions in other parts of Constitution); Rod-

gers v. United States, 138 F.2d 992, 994-95 (6th Cir. 1943).

Accordingly, even if the court were to find the Tax to be a

charge imposed under the commerce power, such a charge is

still subject to the restrictions of the Export Clause if it in fact

serves as a tax or duty. For example, a charge upon exports im-

posed under the Commerce Clause as a user fee, or to regulate

commerce, would not be immune from the restrictions of the

Export Clause if the court found the charge actually to be a tax

or duty on exports. The court looks to substance over nomen-

clature.

29a

The origin of the Export Clause indicates it is to have broad

effect. Two amendments seeking to limit it were rejected. The

first would have limited the Clause by adding "for the purpose

of revenue" to the prohibition against taxes or duties on ex-

ports. II The Records of the Federal Convention of 1787 363

(Max Farrand ed., 1937). The second amendment would have

permitted export taxes if approved by a two-thirds majority in

both Houses of Congress. Note, Constitutionality of Export

Controls, 76 Yale L.J. 200, 203 (1966). The Constitutional

Convention deliberately chose to leave exports unburdened;

and, in so doing, persuaded the South to join the new union.

See id. at 204. For the Southern States, the Export Clause ad-

dressed concerns that a Congress controlled by the North would

impose burdensome levies on southern exports. /nternational

Business Machs. Corp. v. United States, 59 F.3d 1234, 1236

(1995) [hereinafter "JBM"].

The Export Clause serves to keep all exportation free of any

tax burden. Fairbank, 181 U.S. at 290. As the Court in Fair-

bank explained, "if all exports must be free from national tax or

duty, such freedom requires not simply an omission of a tax

upon the articles exported, but also a freedom from any tax

which directly burdens the exportation." /d. at 293.

The court finds the Harbor Maintenance Tax as it applies to

exports constitutes a tax prohibited by the Export Clause and

does not fall under Congress's Commerce Clause powers. De-

fendant contends the Water Resources Development Act does

not establish a tax upon exports in violation of the Export

Clause, because enhancement of the general revenue is not its

primary purpose, but is merely one aspect of a comprehensive

legislative program: providing for conservation and develop-

ment of the nation's water resources .afrastructure. According

to defendant, the value of the benefit provided by the program,

maintenance of safe and efficient ports and harbors, reasonably

relates to the charges imposed and accrues, at least in part, to an

30a

identifiable private beneficiary. In considering the Act as a

whole, defendant contends Congress simply imposed a user fee

"for the purpose of making effective the congressional enact-

ment." (Def.'s Mem. in Opp'n to Amici at 54) (quoting Moon v.

Freeman, 379 F.2d 382, 391 (9th Cir. 1967)).

For defendant to succeed on this argument, the court must

find that regulation is the primary purpose of the Tax, see South

Carolina ex rel. Tindal v. Block, 717 F.2d 874, 887 (4th Cir.

1983), cert. denied, 465 U.S. 1080, 79 L. Ed. 2d 764, 104 S. Ct.

1444 (1984), or alternatively, that Congress sought to raise

money to recoup the costs of services provided to the payer

pursuant to a regulatory scheme, see Pace v. Burgess, 92 U.S.

372, 375-76, 23 L. Ed. 657 (1876). The Tax serves neither pur-

pose.

First, the Act neither discourages nor regulates use of a har-

bor; neither does it so intend. In Moon, the court upheld an ex-

port certificate program for wheat farmers. 379 F.2d at 391-93.

It found the program's monetary imposition for overproduction,

essentially a penalty for non-compliance with the Secretary of

Agriculture's production controls, did not violate the Export

Clause. Jd. The court held where regulation is the primary pur-

pose of the statute as a whole and revenue also is obtained inci-

dentally through imposition of sanctions, the Constitution will

not necessarily prohibit the charge. Jd. at 391 (quoting Rod-

gers, 138 F.2d at 994). Here, the Act does not have regulation

as its primary purpose. For example, it does not seek to control

the amount or manner of port use. Further, the Act does not

seek to influence commercial practices, or seek to enforce

compliance with a legislative goal as did the Agricultural Ad-

justment Act of 1938, as amended by the Food and Agriculture

Act of 1964, considered in Moon, or the Agricultural Act of

1949, as amended, considered in Block. Congress instead

sought funding for the extensive maintenance projects envi-

sioned under the Act. S. Rep. No. 126 at 7, 1986 U.S.C.C.A.N.

at 6644 (noting Congress intended Harbor Maintenance Tax as

3la

new tax to cover portion of Federal spending on harbor mainte-

nance).

Second, there is little indication that Congress intended to

establish a user fee. Rather, Congress found an alternative way

to fund expenditures it intended to make. When Congress en-

acted the Tax, it intended to use the Tax to pay the costs of de-

veloping, operating, and maintaining port projects. H.R. Rep.

No. 251, at 19; S. Rep. No. 228, at 5, 1986 U.S.C.C.A.N. at

6709. The Act permitted disbursement of Tax proceeds to the

U.S. Army Corps of Engineers for recovery of up to 40 percent

of its eligible operation and maintenance Outlays. Water Re-

sources Development Act of 1986 § 210(a)(2), 33 U.S.C. §

2238(a)(2) (1988); see First Annual Rep. at | (noting "federal

expenditures for [port and harbor maintenance] were deter-

mined to be synonymous with expenditures made by the Army

Corps of Engineers"). The Water Resources Development Act

of 1990 increased the rate of the Tax and allowed the Corps of

Engineers to recover up to 100 percent of its "eligible opera-

tions and maintenance costs." 33 U.S.C. § 2238(a)(2) (Supp. V

1993). Since its inception, the Trust Fund has accumulated sig-

nificant surpluses. See 141] Cong. Rec. E519 (daily ed. Mar. 6,

1995) (statement of Rep. McDermott). Accordingly, we take

note of the warning in Moon, “certainly if the record in any way

indicated that substantial amounts of revenue had been gener-

ated by the sale of export certificates, we would hesitate before

deeming the program an exercise of the commerce power." 379

F.2d at 392.

The court finds the primary purpose of the Tax is to raise

revenue, as Congress has imposed "a duty under the pretext of

fixing a fee," Pace, 92 U.S. at 376. For a charge to withstand

constitutional challenge under the Export Clause, it must defray

costs of services rendered pursuant to the regulation of com-

merce, and the taxes collected may not be excessive. In the

Head Money Cases (Edye v. Robertson), 112 U.S. 580, 595-96,

28 L. Ed. 798, 5 S. Ct. 247 (1884), the Supreme Court upheld a

per capita charge on non-U.S. citizens arriving in the United

EEE

32a

States by ship. The Court found the statute in question imposed

the fee to defray costs appropriated in advance for inspection of

immigrants before landing, and for their care and provision af-

terward. Jd. at 590. The Secretary of the Treasury was to "dis-

tribute the fund in accordance with the purpose for which it was

raised, not exceeding in any port the sum received from it." /d.

As such, the charges imposed were incidental to the regulation

of commerce and directly reimbursed the costs of services ren-

dered to the individual.

Similarly, in Pace, the Supreme Court concluded that a fee

for stamps used to distinguish tobacco intended for export - and

thus to alleviate it from the heavy exactions placed upon to-

bacco sold domestically - was not a tax on exports. See 92 U.S.

at 375-76; see also Turpin v. Burgess, 117 U.S. 504, 29 L. Ed.

988, 6 S. Ct. 835 (1886) (sustaining, on similar grounds, consti-

tutionality of charge imposed to identify tobacco packages in-

tended for export). Rather, the Court characterized the stamp as

a fee "accruing in the due administration of the laws and

regulations," serving simply as "compensation given for serv-

ices properly rendered." Pace, 92 U.S. at 375. The Court found

the payment for the services rendered, through identification of

tobacco exported, was no different than "the fee for clearing the

vessel in which [the tobacco] was transported, or for making

out and certifying the manifest of the cargo." /d. The amount of

the fee never exceeded the costs to produce the stamps and the

cost of services necessary to give the exporter the benefit of the

exemption from taxation; identification of the tobacco provided

the exporter the direct benefit of a domestic tax exemption.

In contrast, little nexus binds the imposition of the ad

valorem tax on cargo to the costs of port maintenance and

regulation of shipping. As the exaction is tied to value and

there is no mechanism to ensure that the fees collected will be

used "only or primarily for the cost of" port maintenance

associated with the shipping that is taxed, the Tax is not a user

fee imposed under the commerce power. The fees collected,

rather, yield funds for the purpose of maintaining and

developing American ports and harbors for all uses,

OT ee en te

PRANAB Flow ae

33a

American ports and harbors for all uses, commercial and rec-

reational. Further, the Tax funds projects yet to be commenced,

or even envisioned, rather than services already rendered. Ap-

plication of the Tax has produced a substantial surplus in ex-

cess of the costs incurred. The court therefore finds the Tax

raises revenue, and is not a user fee imposed pursuant to the

regulation of commerce.

The Supreme Court recently has used another test to distin-

guish between an impermissible tax and a user fee. In Massa-

chusetts v. United States, 435 U.S. 444, 55 L. Ed. 2d 403, 98 S.

Ct. 1153 (1978), the Court considered whether an aircraft regis-

tration fee levied on state police aircraft violated the judicially-

implied intergovernmental tax immunity doctrine first set forth

in Collector v. Day, 78 U.S. (11 Wall.) 113, 20 L. Ed. 122

(1871). In concluding that it did not, the Court relied on three

criteria derived from Evansville-Vanderburgh Airport Authority

District v. Delta Airlines, Inc., 405 U.S. 707, 31 L. Ed. 2d 620,

92 S. Ct. 1349 (1972). To constitute a user fee, as contrasted

with a tax, the Court held: (1) the charge must not discriminate

against the constitutionally-protected interest; (2) the imple-

menting authority must base the charge upon a fair approxima-

tion of the use of some system; and (3) the charge must be

structured to produce revenue fairly apportioned to the total

cost to the government of the benefits conferred. Massachu-

setts, 435 U.S. at 466-70.

The Tax fails classification as a user fee under the test pre-

sented in Massachusetts. Although the Export Clause clearly is

designed "to protect constitutionally valued activity from undue

burden" that could result from certain taxing measures, see id.

at 462, the court need not decide the issue of whether the tax is

discriminatory. Even assuming, arguendo, that the Tax is non-

discriminatory, the court finds the Tax fails the remaining two

prongs of the Massachusetts test.

First, the charge is not based upon some fair approximation

of the cost of the benefits port users receive from harbor main-

34a

tenance and development projects. Low value bulk cargo im-

porters and exporters use port facilities to a much greater extent

than high value non-bulk cargo importers and exporters. Yet,

the cost to the latter is greater than that to the former. Further,

most large ports paying the majority of the costs receive no

more than 30% back in maintenance expenditures. (See, e.g.,

Br. of Amicus Amoco Chem. Co., Ex. G (Army Corps of Engi-

neers, Estimated Receipts of Harbor Maintenance Fee from

Cargo Transiting Major Ports (1992)) (draft document) (noting

of $78,711,000 estimated collected 1992 taxes on exports and

imports from Port of Los Angeles, only expenditures).

$162,000 returned in port operation and maintenance expendi-

tures). Additionally, although only certain commercial users

must pay the tax, they are not the sole users of the ports nor the

only beneficiaries of the maintenance and development pro-

jects. Based on the foregoing, the court does not find the charge

imposed under the Tax is based on a fair approximation of the

costs of benefits received by port users.

Second, the charge is excessive in relation to the cost to the

government. The Tax is used to fund projects yet to be com-

menced, or even envisioned, rather than to repay the govern-

ment for services rendered. The Tax has produced a substantial

surplus, that is rapidly expanding, in excess of costs incurred.

Second Annual Rep. at 5.

In sum, the Tax neither seeks to regulate Commerce nor re-

pay the costs of services rendered; moreover, the Tax fails the

alternative test provided by Massachusetts. Accordingly, the

Tax is subject to the prohibitions of the Export Clause.

Defendant questions whether the Harbor Maintenance Tax

is a tax levied upon "exported articles" within the meaning of

the Export Clause. According to defendant, a tax or fee only

violates the Export Clause if it is levied on goods by reason of

their exportation, e.g., if such goods have entered the export

stream. Defendant contends the broad prohibition of the earlier

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35a

Cases against a tax upon goods having entered the export stream

was curtailed by Michelin Tire Corp. v. Wages, 423 U.S. 276,

46 L. Ed. 2d 495, 96 S. Ct. 535 (1976), and further constrained

in Department of Revenue v. Association of Washington Steve-

doring Cos., 435 U.S. 734, 55 L. Ed. 2d 682, 98 S. Ct. 1388

(1978).

Further, according to defendant, imposition of the Tax upon

loading of freight is merely intended to ensure that those who

actually use the ports would pay. As such, the time when the

Tax attaches has no other significance for purposes of assess-

ment of the fee upon exports. The motivation behind imposing

an ad valorem charge, defendant insists, was to minimize pos-

sible competitive disadvantages among Cargo types and U.S.

ports that would have arisen from a user charge.

In any case, defendant argues the Michelin and Washington

Stevedoring tests now examine the nature of the tax at issue,

rather than the status of the article. Those cases explored

whether the taxes were upon "exports as such" and whether

they offended the policies protected by the framers of the Con-

stitution. Those policies, defendant argues, include promoting

uniformity among the former colonies and preventing the North

from crippling the export-dependent Southern States pursuant

to the Import-Export Clause. U.S. Const. art. I, § 10, cl. 2 ("No

States shall ... lay any Imposts or Duties on Imports or Exports

...."). Specifically, defendant contends Michelin established that

a nondiscriminatory ad valorem property tax did not violate the

Import-Export Clause simply because it applied to recently im-

ported goods - there, tires maintained at a wholesale distribu-

tion warehouse. 423 U.S. at 286. Similarly, defendant contends

Washington Stevedoring held that a nondiscriminatory local tax

that compensates the state for services rendered also failed to

implicate the concerns of the Import-Export Clause. 435 U.S. at

755.

Integral to these tests, defendant contends, is the court's ex-

amination of whether the charge discriminates in imposing its

36a

burden. According to defendant, a nondiscriminatory charge for

a service that facilitates export activity does not violate the Ex-

port Clause. Defendant maintains the Tax is such a charge. The

court disagrees.

In examining whether the Tax burdens "exported articles,"

the court limits its inquiry to the Export Clause, for there is a

distinct difference in language between the Import-Export

Clause and the Export Clause. See /BM, 59 F.3d at 1238-39.

The decisions in Michelin and Washington Stevedoring at-

tached significance to the distinction between "Imposts and Du-

ties," and the Export Clause's broader prohibition. See Mich-

elin, 423 U.S. at 290; Washington Stevedoring, 435 U.S. at

759- 60. As the Supreme Court in Michelin noted, the Import-

Export Clause only bans "Imposts or Duties" and is not "a

broad prohibition of every ‘'tax."" 423 U.S. at 290. According to

the Federal Circuit, a difference in policy intended by the fram-

ers of the Constitution underlies the difference in language:

While the Import-Export Clause was intended to prohibit

States from imposing a 'transit fee' on goods moving in foreign

commerce, the Export Clause served the broader purpose of

‘forbidding federal taxation of exports.’ The Supreme Court's

current narrower view of the prohibition in the Import-Export

Clause thus does not dictate that the Export Clause be given a

similarly narrow construction.

IBM, 59 F.3d at 1239 (citations omitted). Defendant's cita-

tions of Michelin and Washington Stevedoring are, thus, inap-

plicable.

Moreover, even if this court were to assume Michelin and

Washington Stevedoring apply to the Export Clause, the cases

remain distinguishable. Michelin concerned imported tires that

had already lost their identity as a unit and as an import after

being unloaded and stored within a warehouse. See 423 U.S. at

280. At the warehouse, workers unloaded the containers in

which the tires were shipped, sorted the tires by size and style,

and stacked them on wooden pallets, without segregation by

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37a

place of manufacture. /d. The tires required no further process-

ing to ready them for sale and delivery to franchised dealers. /d

In this sense, the Court found the warehouse operated "no dif-

ferently than ... a distribution warehouse utilized by a whole-

saler dealing solely in domestic goods." Jd. at 302. Accord-

ingly, the holding in Michelin turned on the fact that the goods

were no longer in import transit. /d. at 286.

As distinguished from the unloaded and unpacked imports

in Michelin, the cargo taxed in this case has entered the stream

of exports. The cargo, as it is loaded on board the vessel, is in

transit, and the Tax falls upon the merchandise itself. As such,

it is an article protected by the Export Clause. Michelin is inap-

plicable.

In Washington Stevedoring, the Supreme Court upheld a

business and occupation tax imposed by the State of Washing-

ton upon the value of certain services rendered - the loading

and unloading of cargo. /d. at 737, 758. The Court distin-

guished the stevedoring services from maritime insurance poli-

cies covering such goods. Jd. at 756 n. 21. The Court found

placing a tax upon the insurance policies was more suspect, and

likely unconstitutional as a violation of the Import-Export

Clause, because "the value of goods [bore] a much closer rela-

tion to the value of insurance policies on [those goods] than to

the value of loading and unloading ships." /d. As the amount of

the Tax ad valorem is tied directly to the value of the goods,

Washington Stevedoring is equally inapplicable.

Two distinct tests have evolved from case law for determin-

ing whether the Export Clause will immunize an article from

taxation. First, the court must examine the immediacy of expor-

tation. Second, the court considers the proximity of the tax im-

posed to the value of the articles exported. Here, neither test

supports the constitutionality of the Tax.

In delineating a zone where an article in the stream of

commerce melds into the export stream, the court looks to see

whether the article is in the actual process of exportation, and

38a

whether it "has begun its voyage or its preparation for the voy-

age." Cornell v. Coyne, 192 U.S. 418, 428, 48 L. Ed. 504, 24 S.

Ct. 383 (1904). For instance, where exported articles were de-

livered to the carrier and title passed, the Supreme Court found

those articles had entered the process of exportation. A.G. Spal-

ding & Bros. v. Edwards, 262 U.S. 66, 68-70, 67 L. Ed. 865, 43

S. Ct. 485 (1923). Thus, taxing such articles would have been

unconstitutional. Although other actions may have been neces-

sary before the goods would have been in transit, "so long as

[these actions] were only the regular steps" taken to export such

goods, the effect of the sale was to start the goods upon their

voyage abroad. See id. at 69-70.

Constitutional freedom from the taxation of exports in-

volves more than mere exemption from taxes laid directly upon

the articles exported. In Fairbank, the Court held that a stamp

tax imposed on a foreign bill of lading was equivalent to a tax

upon the articles listed, and therefore contrary to the Export

Clause. 181 U.S. at 312. The Court noted exports almost al-

ways require bills of lading. See id. at 294 (citing Almy v. Cali-

fornia, 65 U.S. (24 How.) 169, 174, 16 L. Ed. 644 (1861) (not-

ing necessities of foreign commerce always require association

with bill of lading, the Court reasoned, Congress had violated

the letter and spirit of the Export Clause.) See id. at 290-291,

300, 312.

Similarly, in Thames & Mersey Marine Insurance Co. v.

United States, 237 U.S. 19, 59 L. Ed. 821, 35 S. Ct. 496 (1915),

the Supreme Court found a tax upon policies of marine insur-

ance on exports prohibited by the Constitution. In reaching its

determination, the Court inquired whether the tax imposed was

so directly and closely related to the process of exportation that

the tax was in substance a tax upon the exports themselves. /d.

at 25. The Court found its answer within the dynamics of trade

and commerce: where commerce requires an item for exporta-

tion - such as a written instrument necessarily and always asso-

ciated with the export of articles of commerce - taxation of that

item serves as taxation of the exported article. /d. at 26-27.

a rr

39a

This prohibition of the Export Clause also has been applied to

taxes upon charter parties, contracts for the carriage of full

cargo lots, United States vy. Hvoslef, 237 U.S. 1, 16-17, 59 L.

Ed. 813, 35 S. Ct. 459 (1915) and, more recently, to excise

taxes On premiums paid to foreign insurers, /BM, 13 Fed. Cir.

(T), 59 F.3d 1234.

Here, Congress imposed the Tax directly upon exports well

along the stream of exportation. The Tax is assessed at the time

of loading the cargo. 26 U.S.C. § 4461(c)(2). As a tax imposed

upon delivery of cargo to a carrier violates the Export Clause,

see A.G. Spalding, 262 U.S. at 68-70, a tax imposed on the fur-

ther step of loading such cargo onto the vessel also falls within

the prohibition of the Clause.

The Tax is assessed ad valorem directly upon the value of

the cargo itself, not upon any services rendered for the cargo, or

upon any instruments of commerce that accompany the goods.

Further, an ad valorem tax is levied in direct proportion to an

article's value. Congress could not have imposed the Tax any

closer to exportation, or more immediate to the articles ex-

ported.

Accordingly, the court concludes the Tax is prohibited by

the Export Clause and it need not address amici's (claimants in

other cases) contentions pertaining to whether the Tax also vio-

lates the Due Process Clause or the Port Preference Clause of

the Constitution.

As indicated, the parties agree that this court has subject

matter jurisdiction, see supra p. 3, but disagree as to the specific

basis upon which exporters may make claims. Two subsections

of the court's jurisdictional statute may provide the parties a

route for judicial review. See 28 U.S.C. § 1581(a), (i) (1988 &

Supp. V 1993). Subsection 1581(a) provides for review of a

denial by the Customs Service of a protest of certain duties,

charges, exactions, or drawbacks. 28 U.S.C. § 1581(a); 19

40a

U.S.C. § 1515 (1988 & Supp. V 1993). A party must protest a

Customs decision within 90 days of the date of the decision to

be protested. 19 U.S.C. § 1514(c)(3)(B) (Supp. V 1993). On

the other hand, subsection 1581(i) gives the court broad resid-

ual authority over civil actions arising out of federal statutes

governing import transactions. Conoco, 12 Fed. Cir., 18 F.3d at

1586. Subsection 2636(i) of the same title requires a party to

commence an action under subsection 1581(i) “within two

years after the cause of action first accrues." 28 U.S.C. §

2636(i) (Supp. V 1993). The court's decision as to the appropri-

ate jurisdictional basis relates to the amount of plaintiff's recov-

ery.

Defendant argues jurisdiction is only proper under subsec-

tion 1581(a). According to defendant, the court may review

challenges to the constitutionality of the Tax only where an ex-

porter properly protests its payment, and seeks review of the

denial of that protest. Although defendant concedes that "nei-

ther jurisdictional provision may fit exactly," (Tr. of Oral Ar-

gument at 24 (June 27, 1995)) [hereinafter "Tr."], defendant

contends permitting this case to rest upon any other jurisdic-

tional ground would greatly expand the government's liability

and would disregard the only congressionally-mandated avenue

to challenge the Tax.

According to defendant, Congress intended this Court to

entertain a tax challenge only after an exporter had protested its

payment of the tax. Defendant garners support for this interpre-

tation from the statutory language directing the court to treat

the tax as a customs duty for the purpose of jurisdiction. If the

court properly is to treat the tax as a customs duty, defendant

contends, the protest procedures under subsection 1581(a) must

govern.

Further, defendant argues, there is a Customs decision for

the parties to protest - Customs’ decision to accept payment.

(Tr. at 25.) Defendant contends administration of the Tax is not

4la

merely ministerial, because subsection 4462(i), title 26, United

States Code authorizes Customs, through the Department of the

Treasury, with administering the assessment of the Tax. Defen-

dant claims Congress has delegated substantial authority to the

Secretary of the Treasury (1) to determine the method of pay-

ment and collection of the Tax; (2) to exempt certain transac-

tions from the Tax where collection would be impracticable;

and (3) to provide for mitigation of penalties and the settlement

of claims. Defendant claims this grant of power gives the Sec-

retary of the Treasury "near plenary authority to ‘carry out the

purposes' of the Act. "(Def.'s Mem. in Opp'n to Amici at 34.)

Accordingly, defendant contends, Customs' power to adminis-

ter the Tax transcends a ministerial role.

Defendant cites a number of authorities in support of its po-

sition. In Norfolk & Western Railway Co. v. United States, 18

C.1.T. 55, 843 F. Supp. 728 (1994), defendant asserts the court

found the assessment of a user fee similar to the Tax consti-

tuted a protestable decision, and the period for filing the protest

began when Customs decided the plaintiff would have had to

pay the fee. In General Motors Corp. v. United States, 10

C.I.T. 569, 643 F. Supp. 1139 ( 1986), defendant contends the

court held administrative procedures, where available, had to be

exhausted even before Customs issued its decision, According

to the defendant, although the court found the obligation to pay

the charges was derived from statute, payment of the duties was

pursuant to section 1514, and therefore protestable. The fact

that Customs took no affirmative action to collect the duties but

only accepted or rejected certain offers, defendant argues, did

not alleviate the need for protest.

These arguments are unpersuasive. Section 158 l(a) permits

review of protest denials by Customs for only certain final de-

cisions enumerated in 19 U.S.C. § 1514(a). See 28 U.S.C. §

1581(a); 19 U.S.C. § 1515. Fora party to be able to protest and

obtain jurisdiction pursuant to section 1581(a), Customs first

must have made a decision. See 19 U.S.C. § 1514(a), (c) (1988

& Supp. V 1993) (noting Customs decisions are final unless

42a

protested and that such protests must "set forth distinctly and

specifically" each decision protested).

Acceptance of payment of duties owed does not constitute a

protestable decision. See Dart Export Corp. v. United States,

43 C.C.P.A. 64, 74, C.A.D. 610 (holding Customs’ acceptance

of estimated duties tendered did not constitute decision), cert.

denied, 352 U.S. 824, 1 L. Ed. 2d 48, 77 S. Ct. 33 (1956); Best

Foods, Inc. v. United States, 37 Cust. Ct. 1, 9-10, 147 F. Supp.

749, 756-57 (1956) (holding payment of customs duties at time

of entry not decision for purpose of computing time to file pro-

test). Customs plays little role in accepting the payments;

rather, they arrive at a "postal rental box serviced by a com-

mercial bank that processes [Harbor Maintenance Fund] pay-

ments and deposits them to the United States Treasury." United

States General Accounting Office, U.S. Customs Service:

Limitations in Collecting Harbor Maintenance Fees,

GAO/GGD-92-25, at 5 (Dec. 1991). As recognized by this

court in Carnival, it would be impossible to protest the Tax as

"there was no decision of Customs which [plaintiffs] could pro-

test." 866 F. Supp. at 1441.

Neither the Harbor Maintenance Tax statute, nor its regula-

tions, require a decision from Customs. As previously noted,

the statute imposes a Tax on commercial cargo at loading for

exports and unloading for imports. 26 U.S.C. § 4461(c)(2). Li-

ability is an ad valorem percentage of the cargo value. 26

U.S.C. § 4461(b) (Supp. V 1993). Value is determined by stan-

dard commercial documentation. 26 U.S.C. § 4462(a)(5)(A).

Thus Congress, and not Customs, has set the time of imposition

and the amount of the Tax. The regulations require exporters to

pay port "use fees" on a quarterly basis and mail their payment

with a quarterly summary report or cover letter identifying the

exporter to Customs' post office box in Chicago. 19 C.F.R. §

24.24(e) (1995). Exporters may request refunds by mailing an

amended quarterly summary report with a copy of the quarterly

summary report for the quarter(s) in which they request a re-

fund to the Chicago post office box, id., or alternatively by fil-

43a

ing with Customs Headquarters through general provisions for

claims not otherwise provided for by the regulations, 19 C.F.R.

§ 24.73 (1995). None of these procedures requires Customs to

judge the constitutionality of the Tax, and cannot be considered

decisions with respect to payment. These actions are merely

ministerial in nature. Although there may be circumstances

where Customs might exercise discretion in administering and

enforcing the Tax, this discretion does not extend to a determi-

nation on the constitutionality of the Tax.

In this case, there are no issues of classification or similar

issues which would be part of a protestable decision. In Mitsu-

bishi Electronics America, Inc. v. United States, 12 Fed. Cir.,

44 F.3d 973, 976 (1994), the Federal Circuit held Customs does

not make protestable decisions concerning antidumping duties

under 19 U.S.C. § 1514(a). The Court of Appeals emphasized

that Customs only performed a ministerial function in collect-

ing such duties under the direction of the Department of Com-

merce, and Customs did not conduct an investigation, deter-

mine rates and margins, or issue antidumping orders. 44 F.3d at

977. Plaintiff and amici do not argue that they have overpaid

the amount of the Tax; rather, their challenge goes to the heart

of the constitutionality of the statute itself, a matter outside of

Customs' authority. See generally McCarthy v. Madigan, 503

U.S. 140, 147-48, 117 L. Ed. 2d 291, 112 S. Ct. 1081 (1992)

(noting agency may be unable to consider whether relief should

be granted, because of lack of institutional competence to re-

solve issues presented). Similarly, in United States Cane Sugar

Refiners' Ass'n v. Block, 3 C.1.T. 196, 201, 544 F. Supp. 883,

887, aff'd, 69 C.C.P.A. 172, 683 F.2d 399 (1982), in which pro-

test was not required, Customs could not change the scope of

the Presidential Proclamation as to over-quota sugar. Much like

Mitsubishi and Cane Sugar Refiners', there is no decision by

Customs as to whether it will assess the Tax.

Customs does not determine the application, policies, or

rates of the Tax, but merely serves to implement its provisions.

As distinguished from National Corn Growers Ass'n v. Baker,

44a

6 Fed. Cir. 70, 840 F.2d 1547 (1988), where the policies and

rates in question were those of Customs, and "peculiarly within

the ambit of the Customs Service to correct," 6 Fed. Cir. (T) at

82, 840 F.2d at 1556, Customs is powerless to correct the con-

stitutional infirmities raised by plaintiff. See Califano v. Sand-

ers, 430 U.S. 99, 109, 51 L. Ed. 2d 192, 97 S. Ct. 980 (1977)

(finding administrative hearing procedures unsuited to resolv-

ing constitutional issues). In short, Customs must simply follow

the path enacted by Congress.

Moreover, neither of defendant's proffered cases, Norfolk

nor General Motors, supports its position. The protestable deci-

sion in Norfolk - an assessment of a user fee - is distinguishable

from the present case. In Norfolk, the protestable decision was

Customs' particular application of a statute. 843 F. Supp. at

733. Customs’ decision was limited to whether a vessel consti-

tuted a ferry or a barge, not whether the application of the user

fee was constitutional.

General Motors is equally inapposite. The issue concerned

whether car radio components imported into the United States

as original motor-vehicle equipment were diverted for other

uses, and therefore subject to penalty. 10 C.I.T. at 570, 643 F.

Supp. at 1139-40. Defendant argues the court found "payment

[of duties] equated to the protestable event," even though the

duty to pay was derived from statute, and not a Customs deci-

sion. (Def.'s Br. in Opp'n to Amici at 32.) This argument is

misplaced. Plaintiff only paid the diversion duties "once Cus-

toms indicated to plaintiff that it considered the merchandise

diverted." 10 C.I.T. at 575, 643 F. Supp. at 1143 (emphasis

added). Customs made a decision in finding General Motors

had diverted the radios. Again, Customs did not consider the

constitutionality of the statutory scheme as a whole.

Defendant's own arguments support Customs' inability to

make a decision as to the constitutionality of the Tax. Defen-

dant initially argues, "the decision requiring the payment is the

law itself, the compulsion to pay is provided by the statute it-

45a

self. The decision is the decision to accept payment from the

exporter." (Tr. at 26.) Defendant subsequently qualifies this

statement, noting, "it isn't a decision by Customs to accept and

retain the money, it has no authority to return it unless the

proper procedures have been followed, which are filing of a

protest and a denial of a protest." /d. at 59. Such reasoning is

circular. For plaintiffs to file a valid protest, Customs must

have made a protestable decision. As a decision, according to

the defendant, can only be made after the protest is filed, no

protestable decision exists.

Finally, certain amici contend the denial of a refund request

pursuant to 19 C.F.R. § 24.24(e)(5) is a protestable decision,

and that subsection 1581(a) would provide the appropriate ba-

sis for jurisdiction. Although Customs has discretion to decide

whether it is able to refund payments of the Tax, such discre-

tion is limited and does not extend to determinations of consti-

tutionality. As Customs does not have the power to decide the

constitutionality of the Tax, the court finds protestable deci-

sions pursuant to the refund provision of subsection 24.24(e)

(5) are limited to decisions pertaining to the administration of

the Tax, not its constitutionality.

Subsection 1581(i) embraces the issues contested as to the

Harbor Maintenance Tax. It provides, in pertinent part,

(i) In addition to the jurisdiction conferred upon the Court

of International Trade by subsections (a)-(h) of this section

and subject to the exception set forth in subsection (j) of

this section, the Court of International Trade shall have ex-

clusive jurisdiction of any civil action commenced against

the United States, its agencies, or its officers, that arises out

of any law of the United States providing for--

(1) revenue from imports or tonnage;

46a

(4) administration and enforcement with respect to the mat-

ters referred to in paragraph (1)-(3) of this subsection and

subsections (a)-(h) of this section.

28 U.S.C. § 1581(i). Congress directed the Tax be treated as a

customs duty for purposes of jurisdiction. Such duties, by their

very nature, provide for revenue from imports, and are encom-

passed within subsection 1581(1)(1).

Congress similarly intended the administration and enforce-

ment of the Tax to be treated as the administration and en-

forcement of a customs duty. 26 U.S.C. § 4462(f)(1). Thus, ju-

risdiction lies under subsection 1581(1)(4) as it relates to sub-

section 1581(i)(1).

In sum, jurisdiction is provided by 28 U.S.C. § 1581(1).

The court finds the Harbor Maintenance Tax, as it applies

to exports unconstitutional. Plaintiff's motion for summary

judgment is granted, defendant's cross-motion for summary

judgment is denied. Parties are to submit a proposed judgment

in conformity with the opinion within 20 days.

DOMINICK L. DiCARLO

Chief Judge

JANE A. RESTANI

Judge

R. KENTON MUSGRAVE

Judge

Dated: October 25th, 1995

New York, New York

CONCUR BY:

MUSGRAVE

rR AREA ce RRA MN nN op

47a

CONCUR:

Judge MUSGRAVE, concurring.

I concur in the opinion that the Harbor Maintenance Reve-

nue Act (the "Act") is unconstitutional as it applies to exports

and that the plaintiff U.S. Shoe is entitled to the remedy it re-

quests, 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.' In

my view, the manifestly inadequate administrative protest pro-

cedure 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.” 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."

As an initial matter, recent opinions of the Court of Appeals

for the Federal Circuit and this Court have ruled unambigu-

ously that a decision by the Customs Service ("Customs") is a

condition precedent for section 1581(a) jurisdiction to arise.

' E.g., "Amici respectfully join in plaintiff's request that this

Court find the HMT unconstitutional, strike it down, and direct pur-

suant 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 com-

ments addressing the remedy issue.

48a

Mitsubishi Electronics of America, Inc. v. U.S., 44 F.3d 973

(Fed. Cir. 1994); Carnival Cruise Lines v. U.S., 18 C.1.T. 1020,

866 F. Supp. 1437 (1994). As the Court's opinion makes abun-

dantly clear, there is no decision involved in Customs' collec-

tion of these unconstitutional taxes because Customs lacks dis-

cretion 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. Ac-

cording to these amici, the Court could dismiss as net 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(1), as such procedures are inadeavate 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 circum-

stances. The ultimate issue presented by such arguments is

whether administrative remedies set forth by statute and regula-

tions are appropriate when a party seeks a refund o° payments

mandated by an act of Congress by challenging suck act as un-

constitutional.

The administrative remedial procedure as it applies to re-

fund requests is clearly not meaningful or adequate under the

given circumstances. See generally McCarthy v. Madigan, 503

U.S. 140, 144-149, 117 L. Ed. 2d 291, 112 S. Ct. 1081 (1992)

(explaining circumstances in which administrative remedies

need not be exhausted); and Conoco v. Foreign Trade Zones

49a

Board, 18 F.3d 158] (Fed. Cir. 1994) (holding section 1581(a)

jurisdiction inappropriate where it is futile or manifestly inade-

quate). 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 vy.

Sanders, 430 U.S. 99, 109, 51 L. Ed. 2d 192, 97 S. Ct. 980

(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 ques-

tions."). 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 conclu-

sion. (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 statu-

torily mandated user fee.? Such routine denial demonstrates that

filing refund requests with Customs on grounds of unconstitu-

tionality is clearly a futile act.

Lastly, requiring a party to file for refunds may unduly

prejudice that party. "Prejudice may result, for example, from

an unreasonable or indefinite timeframe for administrative ac-

tion." McCarthy, 503 U.S. at 147. 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 re-

fund. This Court has recently deemed it appropriate to waive

. Declaration of Charles Davies, Director - User Fee Task Force,

Headquarters Office of Inspection and Control at 6, and attachments.

50a

exhaustion of administrative remedies because they were not

clearly delineated and because they set up indefinite timetables.

B-West Imports v. United States, 19 C.L.T., 880 F. Supp. 853,

Slip Op. 95-28 (Feb. 24, 1995). The administrative refund pro-

cedures 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 lan-

guage of that section which cover the issues plaintiff brings be-

fore the Court. Conoco, 18 F.3d at 1588-89. Defendant argues

that section 1581(i) by its own terms fails to provide a jurisdic-

tional basis for a constitutional challenge to the Tax because

plaintiff's claims are based upon payments associated with ex-

ports, while the express terms of subsections 1581(i)(1) and (2)

apply only to imports. (Def.'s 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. De-

fendant'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)(1)-(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 ex-

ports, and it is uncertain as to which court would have jurisdic-

tion over the Tax as it applies to, e.g., passenger services.

As the opinion of the Court points out, Congress did not in-

tend for the district courts to exercise jurisdiction over the Tax.

The statutory language of 26 U.S.C. § 4462(f)(2) and its ac-

companying legislative history indicate Congress’ clearly stated

intention that this Court have jurisdiction over the Tax. Fur-

thermore, "Section 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

Sla

to eliminate the confusion over whether

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