CIT Addresses New US Argument Over Classification of Reimported Swimsuits, Gets to Same Result
The Court of International Trade in a Feb. 17 opinion set aside a March 2022 decision in a customs spat over reimported swimsuits to hear an additional argument from the U.S., though the court ultimately reached the same conclusion.
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Again sending the case to the second phase of the bench trial over whether the swimsuits qualify for Harmonized Tariff Schedule subheading 9801.00.20, Judge Jennifer Choe-Groves addressed the government's claim over whether a Warehousing Agreement between two related companies was valid under Canadian corporate law since the companies were allegedly the same entity. The judge said that the companies are different and so the original decision to find that the Warehousing Agreement amounts to a lease or similar use agreement stands.
The case concerns importer SGS Sports' swimsuits entered under subheading 9801.00.20 after first shipping them to Canada for warehousing at related firm Canada 147483's warehouse. CBP initially rejected the classification in 2018, finding that SGS and the warehouse operator were actually the same entity under the same ownership and could not have executed any "agreement" as required by the subheading.
The HTS subheading comes with four conditions: the reimported merchandise must have duties paid on it when it was first imported; have not been advanced in value while abroad; have been exported under a lease or similar use agreement; and have been reimported by or for the person who imported the goods into, and exported them from, the U.S. At the trade court, Choe-Groves initially set a bench trial to see whether this third condition was met. In the March 2022 decision, the judge held that it was (see 2203210065).
The government, though, filed a rehearing motion on the grounds that the court did not address its argument that SGS and 147483 are not separate entities (see 2204200038). Choe-Groves agreed, granting the rehearing bid. Looking to the U.S. claims, the judge said that since both of the entities are corporations, to find whether they are the same entity requires the court to "pierce the corporate veils of both SGS and Canada 147483." Choe-Groves held that corporate law applies in the current case, given that both entites were incorporated in Canada.
Looking to a string of Canadian court cases, the judge said that a party must prove that the directors or shareholders of a company at issue are the "alter ego of the corporation." The U.S. said the test for piercing the corporate veil and finding if one entity is an alter ego of another need not be applied "rigidly" given that CBP did not seek to impose liability on 147483 or Steven Gellis, president of SGS. Choe-Groves said she was not convinced of a less rigid test given the government's lack of authority on this point.
"Defendant did not present evidence at trial that SGS committed fraud, abuse of right, or contravention of a rule of public order as required under Canadian law to pierce the corporate veil," the opinion said. "The Court agrees with Plaintiff’s assertion that Defendant never elicited evidence at trial regarding alleged fraud or wrongdoing by the principals of SGS and Canada 147483, even though Defendant crossexamined multiple witnesses from SGS and Canada 147483 during trial." As a result, the judge held that the third component of proving classification under subheading 9801.00.20 is satisfied and ordered that the case be sent to the second phase of the trial.
(SGS Sports v. United States, Slip Op. 23-20, CIT # 18-00128, dated 02/17/23, Judge Jennifer Choe-Groves. Attorneys: John Peterson of Neville Peterson for plaintiff SGS Sports; Monica Triana for defendant U.S. government)