U.S. Auto Parts Network, Inc. v. United States , 307 F. Supp. 3d 1373 ( 2018 )

Slip Op. 18-38
UNITED STATES COURT OF INTERNATIONAL TRADE
U.S. AUTO PARTS NETWORK, INC.,
Plaintiff,
v.
Before: Jennifer Choe-Groves, Judge
UNITED STATES, UNITED STATES
DEPARTMENT OF HOMELAND Court No. 18-00068
SECURITY, SECRETARY KIRSTJEN
NIELSEN, and CHIEF FREDERICK J.
EISLER, III,
Defendants.
MEMORANDUM AND ORDER
[Granting in part and denying in part Plaintiff’s Motion for Temporary Restraining Order.]
Dated: April 6, 2018
Barry F. Irwin and Reid P. Huefner, Irwin IP LLC, of Burr Ridge, IL, for Plaintiff U.S. Auto
Parts Network, Inc. With them on brief were Iftekhar A. Zaim and Chris Eggert.
Beverly A. Farrell and Monica P. Triana, Trial Attorneys, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice, of New York, N.Y., and Amy M. Rubin, Assistant
Director, for Defendants United States, U.S. Department of Homeland Security, Secretary
Kirstjen Nielsen, and Chief Frederick J. Eisler, III. With them on brief was Chad A. Readler,
Acting Assistant Attorney General. Of Counsel were Ed Maurer and Yelena Slepak, U.S.
Customs and Border Protection.
Choe-Groves, Judge: Plaintiff U.S. Auto Parts Network, Inc. (“U.S. Auto” or “Plaintiff”)
is a company that sells, among other products, vehicle grilles and associated parts for vehicle
repairs (“Repair Grilles”). Plaintiff commenced this action to obtain judicial review of the
decision made by U.S. Customs and Border Protection (“Customs”) to impose an enhanced
single entry bond requirement for each of Plaintiff’s shipments into the United States in the
Court No. 18-00068 Page 2
amount of three times the shipment value (“SEB Requirement”). See Am. Verified Compl. ¶ 9,
Apr. 5, 2018, ECF No. 17 (“Compl.”). Before the court is the Plaintiff’s Motion for Temporary
Restraining Order. See Pl.’s Mot. , Apr. 2, 2018, ECF No. 5; Mem. P. & A. Supp. U.S. Auto’s
Appl. TRO, Apr. 2, 2018, ECF No. 6 (“Pl.’s Mem.”). For the reasons explained below, the court
grants in part and denies in part Plaintiff’s motion.
BACKGROUND
Section 42 of the Lanham Act forbids the importation and entry of merchandise into the
United States that copies or simulates the name of a domestic manufacturer or registered
trademark in such a way that causes confusion to the public regarding the true origins of the
product. See 15 U.S.C. § 1124 (2012). 1 Under Section 526 of the Tariff Act of 1930, 2 “[a]ny
such merchandise bearing a counterfeit mark 3 . . . imported into the United States in violation of”
Section 42 of the Lanham Act shall be seized by Customs officers and subject to forfeiture. See
19 U.S.C. § 1526(e). Customs officers have the additional authority to require “bonds or other
security . . . they[] may deem necessary for the protection of the revenue or to assure compliance
with any provision of law, regulation, or instruction which the Secretary of the Treasury or the
Customs Service may be authorized to enforce.” Id. § 1623(a). Customs’ own regulation and
1
All further citations to Titles 5, 15, 19, and 28 of the U.S. Code are to the 2012 edition.
2
All further citations to the Tariff Act of 1930 are to the relevant provisions of Title 19 of the
U.S. Code.
3
The Lanham Act defines “counterfeit” as a “spurious mark which is identical with, or
substantially indistinguishable from, a registered mark.” 15 U.S.C. § 1127. The same provision
also delineates various types of marks. See id.
Court No. 18-00068 Page 3
directive provide further guidance as to how the agency determines the amount of a bond. See
19 C.F.R. § 113.13 (2018); 4 Compl. Ex. E, Apr. 5, 2018, ECF No. 17-5.
U.S. Auto received notice of the enhanced bond in an email from Customs on March 7,
2018. See Compl. Ex. B, Apr. 5, 2018, ECF No. 17-2. According to the correspondence,
because U.S. Auto “had over 30 shipments containing” merchandise in violation of 19 U.S.C. §
1526(e), “a single entry bond at three times the value of the shipment [will be] required on all
future shipments to adequately ensure compliance with applicable Intellectual Property Rights
laws and the prohibition on importation of counterfeit or copyrighted goods. Any future entries
without a single entry bond for three times the shipment value will be rejected.” Id. Customs
imposed the treble bond requirement pursuant to 19 C.F.R. § 113.13(c) and (d). See id.
U.S. Auto commenced this action on April 2, 2018. See Summons, Apr. 2, 2018, ECF
No. 1; Compl., Apr. 2, 2018, ECF No. 2. The complaint alleges violations of the Administrative
Procedure Act, as well as the Fifth and Eighth Amendments of the United States Constitution.
See Compl. ¶¶ 22. Plaintiff filed its Motion for Temporary Restraining Order concurrently,
seeking relief from Customs’ treble bond requirement. See Pl.’s Mot. TRO, Apr. 2, 2018, ECF
No. 5. Defendants (collectively, “Government”) filed a response. See Defs.’ Resp. Pl.’s Mot.
TRO, Apr. 5, 2018, ECF No. 15 (“Defs.’ Resp.”). The court held a hearing by telephone
conference with the Parties on April 6, 2018. See Teleconference, Apr. 6, 2018, ECF No. 19.
4
All further citations to Title 19 of the Code of Federal Regulations are to the 2018 edition.
Court No. 18-00068 Page 4
DISCUSSION
I. Subject Matter Jurisdiction
The court must first determine whether it possesses subject matter jurisdiction over this
action. Plaintiff asserts that the court has jurisdiction over all currently-imported goods subject
to the SEB Requirement under 28 U.S.C. § 1581(i). 5 See Compl. ¶ 24; Pl.’s Mem. 25–26.
Plaintiff also contends that the court has jurisdiction over all prospective imports subject to the
SEB Requirement under 28 U.S.C. § 1581(h) or, in the alternative, 28 U.S.C. § 1581(i). See
Compl. ¶ 24; Pl.’s Mem. 26.
The court reviews challenges to Customs’ determinations regarding bond sufficiency
under 28 U.S.C. § 1581(i)(4). See, e.g., Harmoni Int’l Spice, Inc. v. United States, 41 CIT __,
__, 211 F. Supp. 3d 1298, 1306 (2017) (asserting jurisdiction under 28 U.S.C. § 1581(i)(4) over
action involving Customs’ requirement that company post single bond at a rate based on
antidumping duty rate preliminarily assigned by the U.S. Department of Commerce); Seafood
Exps. Ass’n of India v. United States, 31 CIT 366, 375, 479 F. Supp. 2d 1367, 1376 (2007)
(asserting jurisdiction over challenge to Customs’ bond directive pursuant to 28 U.S.C.
5
Under 28 U.S.C. § 1581(i), the Court has exclusive jurisdiction over:
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;
(2) tariffs, duties, fees, or other taxes on the importation of merchandise for
reasons other than the raising of revenue;
(3) embargoes or other quantitative restrictions on the importation of merchandise
for reasons other than the protection of the public health or safety; or
(4) administration and enforcement with respect to the matters referred to in
paragraphs (1)–(3) of this subsection and subsections (a)–(h) of this section.
28 U.S.C. § 1581(i).
Court No. 18-00068 Page 5
§ 1581(i)(4) “as it relates to § 1581(i)(1) and (i)(2)”). The court exercises subject matter
jurisdiction, therefore, over the entirety of this action pursuant to 28 U.S.C. § 1581(i)(4).
II. Plaintiff’s Motion for Temporary Restraining Order
A. Legal Standard
Rule 65(b) of the Rules of this Court allows for the issuance of a temporary restraining
order in an action. USCIT R. 65(b). The court considers four factors when evaluating whether
to grant a temporary restraining order or preliminary injunction. See Winter v. Nat. Res. Def.
Council, Inc., 555 U.S. 7, 20 (2008); see also Silfab Solar, Inc. v. United States, Slip Op. 18-15,
2018 WL 1176619, at *3 (CIT Mar. 5, 2018) (recognizing that the standard for evaluating a
motion for a temporary restraining order and a motion for preliminary injunction are the same).
These factors are: (1) whether the party will incur irreparable harm in the absence of such order
or injunction; (2) that the party is likely to succeed on the merits of the action; (3) that the
balance of hardships favors the imposition of temporary equitable relief; and (4) that the
temporary restraining order or injunction is in the public interest. See Winter, 555 U.S. at 20;
see also Wind Tower Trade Coal. v. United States, 741 F.3d 89, 95 (Fed. Cir. 2014). No one
factor is “‘necessarily dispositive,’ because ‘the weakness of the showing regarding one factor
may be overborne by the strength of the others.’” Belgium v. United States, 452 F.3d 1289,
1292–93 (Fed. Cir. 2006) (citing FMC Corp. v. United States, 3 F.3d 424, 427 (Fed. Cir. 1993)).
The factors should be weighed according to a “sliding scale,” however, which means that a
greater showing of irreparable harm in Plaintiff’s favor lessens the burden on Plaintiff to show a
likelihood of success on the merits. See id. (internal citations omitted). The court will evaluate
each of the four factors in turn.
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B. Irreparable Harm
Plaintiff must show that it will suffer irreparable harm absent a grant of a temporary
restraining order. See Winter, 555 U.S. at 20. Irreparable harm includes “a viable threat of
serious harm which cannot be undone.” Zenith Radio Corp. v. United States, 710 F.2d 806, 809
(Fed. Cir. 1983) (internal citations omitted). An allegation of financial loss alone, generally,
does not constitute irreparable harm if future money damages can provide adequate corrective
relief. See Sampson v. Murray, 415 U.S. 61, 90 (1974). Bankruptcy or substantial loss of
business may constitute irreparable harm, however, because “loss of business renders a final
judgment ineffective, depriving the movant of meaningful judicial review.” Harmoni Int’l Spice,
Inc., 41 CIT at __, 211 F. Supp. 3d at 1307 (citing Doran v. Salem Inn, Inc., 422 U.S. 922, 932
(1975)). “Price erosion, loss of goodwill, damage to reputation, and loss of business
opportunities” may also constitute irreparable harm. Celsis In Vitro, Inc. v. CellzDirect, Inc.,
664 F.3d 922, 930 (Fed. Cir. 2012) (internal citations omitted).
U.S. Auto claims that the SEB Requirement threatens the viability of its business. See
Pl.’s Mem. 19–21. U.S. Auto receives an average of forty shipments per week, each having a
commercial value of approximately $42,000. See Am. Decl. Aaron Coleman Supp. U.S. Auto
Mem. Supp. Appl. TRO ¶ 6, Apr. 5, 2018, ECF No. 18 (“Coleman Decl.”). Customs’ new
instructions require a bond valuing roughly $125,000 per shipment, which equates to an
estimated $5 million per week. See id. ¶ 9. U.S. Auto asserts that it has not been able to find a
surety that will cover the bond requirement without full collateral, and the business cannot
sustain itself on domestically-sourced inventory alone. See id. ¶¶ 10, 16. “Without the ability to
import any merchandise . . . in a short period of time, U.S. Auto will no longer be able to
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continue in business and will likely be forced to cease all operations and liquidate the company.”
Id. ¶ 32. Plaintiff also contends that its inability to pay the bond requirement will harm its
supply chain, cause inventory shortfalls, damage its relations with business partners, and lead to
a loss of reputation and goodwill. See id. ¶¶ 18–29.
The Government contests Plaintiff’s proffered support as “speculative, vague and/or
unsupported statements.” Defs.’ Resp. 15. The court disagrees. Plaintiff has demonstrated that
the SEB Requirement will cause it significant financial detriment resulting in likely closing its
business. The court concludes that Plaintiff’s statements are sufficient to show irreparable harm
for the purpose of the motion.
C. Balance of Hardships
When evaluating a request for a temporary restraining order, it is the court’s
responsibility to balance the hardships on each of the Parties. See Winter, 555 U.S. at 20. To
support its showing for this factor, U.S. Auto reiterates the same reasons it proffered to
demonstrate a threat of irreparable harm. See Pl.’s Mem. 34–35. The Government attests that
Customs, in contrast, “has suffered significant harm as a result of having to inspect each of
plaintiff’s shipments in order to locate and remove infringing merchandise.” Defs.’ Resp. 15–16.
Customs officers at the port are required to inspect the containers because “infringing
merchandise cannot be allowed into the U.S. stream of commerce.” Id. at 16. Defendants argue
that Customs has conducted these inspections for months, requiring “substantial diversion of
resources” and “more than 1100 man hours.” Id. at 18. There are an additional ninety containers
at the port currently, which will require “thousands of man hours and significant resources” to
inspect. Id. The court notes that Customs faces burdens of resource diversion and
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inconvenience, but does not face any permanent consequences. Based on the facts and
arguments presented, the court concludes that the balance of hardships weighs in the favor of
Plaintiff, who is facing the closing of its business, loss of reputation, loss of customers, and other
potentially permanent consequences due to the enhanced bond requirements.
D. Likelihood of Success on the Merits
In order to obtain a temporary restraining order, Plaintiff bears the burden of showing
that it is likely to succeed on the merits of its claims. See Winter, 555 U.S. at 20. U.S. Auto
asserts four claims against the Government in its complaint. See Compl. ¶¶ 65–81. Plaintiff’s
first two counts allege that Customs’ imposition of the treble bond requirement violated various
provisions of the Administrative Procedure Act. See id. ¶¶ 65–73. U.S. Auto’s third claim
contends that the treble bond requirement constitutes a punitive action and is unconstitutional
under the Eighth Amendment’s Excessive Fines Clause. See id. ¶¶ 74–75. Plaintiff’s fourth
claim asserts that Customs did not provide U.S. Auto with the opportunity to challenge the
increased bond requirement, which amounted to a violation of Plaintiff’s right to due process
under the Fifth Amendment. See id. ¶¶ 76–81. Plaintiff requests both injunctive and monetary
relief. See id. ¶¶ A–H. Because Plaintiff’s briefing does not discuss its likelihood of success on
the merits with regards to its Eighth Amendment claim, see Pl.’s Mem. 25–34, the court declines
to evaluate it here.
1. Counts I and II: Agency Action in Violation of the Administrative
Procedure Act
U.S. Auto asserts that Customs’ application of the SEB Requirement on all of its
shipments constitutes an agency action that is reviewable under the Administrative Procedure
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Act. See Compl. ¶¶ 65–73. Plaintiff contends specifically that Customs, in setting the SEB
Requirement, acted arbitrarily and capriciously, as well as beyond its statutory mandate,
applicable regulations, and own Customs Directive. See id. The Government argues that
Customs officers have the authority to impose bond requirements pursuant to 19 U.S.C. § 1623, 6
and implore that the SEB Requirement was necessary in order to ensure U.S. Auto’s compliance
with the Customs Modernization Act, Pub. L. No. 103-182, 107 Stat. 2057 (1993), which
imposes on importers a duty to engage in reasonable care. See Defs.’ Resp. 3, 11–12.
The Administrative Procedure Act prohibits an agency from acting in a manner that is
“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” 5
U.S.C. § 706(2)(A). An agency cannot act, furthermore, “in excess of statutory jurisdiction,
authority, or limitations, or short of statutory right,” or “without observance of procedure
required by law.” Id. § 706(2)(C), (D). The court considers whether the agency “entirely failed
to consider an important aspect of the problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implausible that it could not be ascribed to a
difference in view or the product of agency expertise.” Motor Vehicle Mfrs. Ass’n. v. State
6
The statute reads, in relevant part:
In any case in which bond or other security is not specifically required by law, the
Secretary of Treasury may by regulation or specific instruction require, or authorize
customs officers to require, such bonds or other security as he, or they, may deem
necessary for the protection of the revenue or to assure compliance with any provision of
law, regulation, or instruction which the Secretary of the Treasury or Customs Service
may be authorized to enforce.
19 U.S.C. § 1623(a).
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Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also Al. Aircraft Indus., Inc. v. United
States, 586 F.3d 1372, 1375 (Fed. Cir. 2009) (stating the same).
19 U.S.C. § 1623 facially appears to confer Customs officers with discretion in setting
the amount of a bond. Customs’ own directive provides further guidance in determining the
amount. The directive states, in relevant part, “The purpose of the bond is to protect the revenue
and ensure compliance. . . . However, it is not Customs [sic] intent to require bond amounts
which unnecessarily put an excessive burden on a person or firm, or place them in an impossible
situation.” Compl. Ex. E, at 2, Apr. 5, 2018, ECF No. 17-5. Here, the SEB Requirement goes
against the directive by placing U.S. Auto in a difficult position. The court notes that the
Government confirmed that approximately 99% of the goods imported by U.S. Auto are not
implicated by Customs’ counterfeit allegations. See Pl.’s Mem. 2; see also Teleconference at
0:42:55–0:43:06, Apr. 6, 2018, ECF No. 19. The Government confirmed further that the SEB
Requirement seeks to ensure compliance with respect to only 1% of U.S. Auto’s shipments, but
burdens all of U.S. Auto’s imports. Customs’ action of imposing an enhanced, punitive bond on
all of Plaintiff’s imports, when it actually should be directed towards only 1% of imports, is an
abuse of discretion that is contrary to Customs’ mandate. Based on the facts available at this
juncture of the action, the court concludes that Plaintiff has shown a likelihood of success on the
merits with regards to its claims under the Administrative Procedure Act.
2. Count IV: Due Process
U.S. Auto further alleges that Customs’ imposition of the SEB Requirement “without
giving U.S. Auto the opportunity to challenge the underlying factual and legal determinations
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judicially or the ability to challenge the bond requirement is contrary to the law” and amounts to
a violation of the Fifth Amendment’s Due Process Clause. See Compl. ¶¶ 76–81.
The Fifth Amendment prohibits the deprivation of life, liberty, or property without due
process of law. U.S. Const. amend. V. “The core of due process is the right to notice and a
meaningful opportunity to be heard.” LaChance v. Erickson, 522 U.S. 262, 266 (1998) (citing
Cleveland Bd. of Ed. v. Loudermill, 470 U.S. 532, 542 (1985)). “The first inquiry in every due
process challenge is whether the plaintiff has been deprived of a protected interest in ‘property’
or ‘liberty.’” Int’l Custom Prods., Inc. v. United States, 791 F.3d 1329, 1337 (Fed. Cir. 2015),
cert. denied, 136 S. Ct. 2408 (2016) (quoting Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40,
59 (1999)). Only after establishing that the plaintiff has been deprived of a protected interest
will the court evaluate whether the afforded procedures comport with due process requirements.
See Am. Mfrs. Mut. Ins. Co., 526 U.S. at 59.
Plaintiff likely cannot assert a genuine due process claim because it has not been deprived
of a Constitutionally protected interest. Courts have recognized that individuals do not have a
protectable interest to engage in international trade under the Constitution. See Int’l Custom
Prods., Inc., 791 F.3d at 1337 (citing Am. Ass’n of Exps. & Imps.—Textile & Apparel Grp. v.
United States, 751 F.2d 1239, 1250 (Fed. Cir. 1985)). Plaintiff has not shown, therefore, a
likelihood of success on the merits with regard to Count IV in its complaint.
E. Public Interest
Plaintiff must also demonstrate that a grant of a temporary restraining order serves the
public interest. See Winter, 555 U.S. at 20. U.S. Auto contends that the public interest favors a
temporary restraining order in this action because the company otherwise risks bankruptcy,
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which would deprive it access to meaningful judicial review. See Pl.’s Mem. 36. Plaintiff notes
that the litigation of meritorious claims provides a check on Government enforcement and
ensures the proper administration of the law. See id. U.S. Auto argues further that without the
temporary restraining order, over 350 U.S. residents will lose their jobs, and the aftermarket auto
parts market, which “saves U.S. Consumers $1.5 [billion] annually,” will suffer. Id. The
Government disagrees, asserting that the grant of a temporary restraining order “will allow U.S.
Auto to continue to import goods that infringe upon registered trademarks and require [Customs]
to expend significant time and resources to remove infringing goods from U.S. Auto’s
shipments.” Defs.’ Resp. 19. Defendants contend, furthermore, that “[w]hile it is possible that
aftermarket parts are cheaper for customers, this does not negate the public interest in
compliance with law or the protection of intellectual property rights.” Id. at 20.
The court concludes that the public interest factor alone would be in Defendants’ favor,
since the public benefits from the efficient administration and enforcement of the law.
CONCLUSION
For the aforementioned reasons, and viewing all of the relevant factors as a whole, the
court concludes that Plaintiff has sufficiently demonstrated its need for a temporary restraining
order with respect to the subject merchandise not alleged to be infringing. Accordingly, upon
consideration of Plaintiff’s Motion for Temporary Restraining Order, and all other papers and
proceedings in this action, it is hereby
ORDERED that Plaintiff’s motion is granted in part and denied in part; and it is further
ORDERED that Defendants and their officers, employees, and agents be temporarily
restrained starting at 5:00 P.M. on the date of this Order from enforcing a requirement that, for
Court No. 18-00068 Page 13
each shipment into the United States, U.S. Auto Parts Network, Inc. (“U.S. Auto”) submit a
single entry bond at three times the shipment value in order to obtain entry into the United States
with respect to the subject merchandise not alleged to be infringing; and it is further
ORDERED that Defendants and their officers, employees, and agents may impose a
single entry bond at three times the shipment value proportional to the percentage of allegedly
infringing goods contained in the shipments; and it is further
ORDERED that Defendants and their officers, employees, and agents shall expeditiously
process all of U.S. Auto’s shipping containers and immediately release to U.S. Auto all imports
not implicated by Customs’ underlying trademark infringement allegations; and it is further
ORDERED that this temporary restraining order will expire on April 20, 2018 at 5:00
P.M.
/s/ Jennifer Choe-Groves
Jennifer Choe-Groves, Judge
Dated: April 6, 2018
New York, New York