RIDGWAY, Judge.
The Government commenced this action to collect $120,000 in liquidated damages, plus interest, from Defendant Pressman-Gutman Co., Inc., or, in the alternative, from Pressman-Gutman's surety, Defendant American Motorists Insurance Company. See Plaintiff's Brief in Support of its Opposition to Defendants' Motions to Dismiss This Action ("Pl.'s Opposition to Motions to Dismiss") at 1, 4; Complaint ¶¶ 1, 5. The Government contends that Pressman-Gutman is liable for liquidated damages because, according to the Government, the company breached the terms of its customs bond by failing to redeliver certain imported merchandise to the U.S. Customs Service,
Now pending before the Court is Pressman-Gutman's Motion to Dismiss this action for failure to state a claim upon which relief can be granted, filed pursuant to Rule 12(b)(5) of the Rules of this Court. See Defendant's Memorandum of Law and Points of Authority in Support of its Motion
In its Cross Motion to Dismiss Action/Cross Motion for Collateral Security and Attorney's Fees, AMICO seconds Pressman-Gutman's arguments urging dismissal of this action. See Defendant, American Motorists Insurance Company's Memorandum of Law and Points of Authority in Support of its Cross Motion to Dismiss and for Collateral Security and Attorney's Fees ("AMICO Cross-Motion") at 1-2. But AMICO devotes the bulk of its seven-page brief to its claim against Pressman-Gutman for collateral security and attorneys' fees and expenses under an indemnity agreement between the two parties. See AMICO Cross-Motion at 2-7.
Based on its assertions that Customs' demands for redelivery were untimely (and that the claim for liquidated damages is therefore without merit), Pressman-Gutman argues that it should not be required to provide collateral security to AMICO, or, in the alternative, that it should be permitted to deposit the security with the Court. See Defendant's Memorandum of Law and Points of Authority in Support of Its Response to American Motorists Insurance Company's Cross-Motion to Dismiss and for Collateral Security and Attorney's Fees ("Pressman-Gutman Response to Cross-Motion") at 1-2, 9-13. In addition, Pressman-Gutman contends that conflicts of interest and other grounds mitigate its obligation to reimburse AMICO's attorneys' fees and expenses. See Pressman-Gutman Response to Cross-Motion at 2, 13-20.
Jurisdiction lies under 28 U.S.C. §§ 1582 and 1583 (1994).
Pressman-Gutman emphasizes that Customs regulations require that, in a case such as this, "any demand for redelivery. . . be made no later than . . . 30 days after the end of the conditional release period." See 19 C.F.R. § 113.62(d); see generally Pressman-Gutman Motion to Dismiss at 6-17; Pressman-Gutman Reply at 1-2. Pressman-Gutman further argues that Customs Headquarters has consistently interpreted agency regulations to mean that, in a case such as this, the "conditional release period" begins when Customs requests a sample of the merchandise at issue, and ends when Customs receives the requested sample. See Pressman-Gutman Motion to Dismiss at 7-15; Pressman-Gutman Reply at 2-3.
Here, it is undisputed that the demands for redelivery were made well more than 30 days after Customs received the requested samples. See Complaint ¶¶ 13-14, 25-26. As such, Pressman-Gutman contends that Customs' demands for redelivery were untimely and are unenforceable, that there was therefore no breach of
The Government concedes that the demands for redelivery in this case were made well more than 30 days after Customs received the requested samples from Pressman-Gutman. See Pl.'s Opposition to Motions to Dismiss at 3-4. However, the Government contends that an individual Customs staffer at the Port of JFK Airport in New York "extended" the conditional release periods here within 30 days of Customs' receipt of the samples, by sending notices to Pressman-Gutman stating that the samples had been forwarded to the lab for analysis and that the "[c]onditional release period [was being] extended for 90 days pending lab analysis." See id. at 2-6, 9-13; Complaint, Exhs. 5, 14. The Government asserts that, because the demands for redelivery were issued within 30 days after the end of the "extended" conditional release period, the demands were therefore timely. See Pl.'s Opposition to Motions to Dismiss at 5, 8-10, 14. The Government concludes that Pressman-Gutman breached the terms of its customs bond by failing to redeliver the merchandise at issue, and that Customs is therefore entitled to the liquidated damages at issue in this action. See id. at 1-2; Complaint ¶¶ 6-7, 15, 19, 27, 31.
As detailed below, the Government's theory of this case is bankrupt. Its argument rests entirely on the slender thread of a single phrase that is read out of context and appears in only a handful of Customs documents, all of which date back nearly two decades. Even more to the point, the Government's case flouts both (1) 19 C.F.R. § 113.62(d), which requires that Customs make any demand for redelivery within 30 days of the end of the "conditional release period," and (2) approximately 20 years of rulings by Customs Headquarters, which have consistently and repeatedly interpreted the agency's regulations to mean that, in a case such as this, the "conditional release period" ends when Customs receives a requested sample.
The Government has no colorable claim here. This is an action that never should have been brought; and the motions to dismiss it now must be granted.
The relevant facts are straightforward and uncontested. This action arose from a classification dispute involving two entries of textile fabrics made in September 1999—the first entry on or about September 3, 1999, and the second on or about September 22, 1999. See Pressman-Gutman Motion to Dismiss at 3-4; Pl.'s Opposition to Motions to Dismiss at 3; Complaint ¶¶ 9-10, 21-22, Exhs. 2-3, 11-12. Soon after each entry, Customs issued a standard form "Request for Information" ("CF 28") for each of the two entries, requesting samples of the merchandise as part of the agency's analysis of the proper classification and quota category for the goods. See Complaint ¶¶ 11, 23, Exhs. 4, 13; Pressman-Gutman Motion to Dismiss at 4-5; Pl.'s Opposition to Motions to Dismiss at 3-4; Pressman-Gutman Response to Cross-Motion at 3. The fabric's country of origin was never at issue. Id.
Pressman-Gutman promptly complied with Customs' requests. The samples from the first and second entries were sent to Customs on or about October 6, 1999 and on or about October 19, 1999, respectively. See Pl.'s Opposition to Motions to Dismiss at 3-4; Complaint ¶¶ 12, 24, Exhs.
Complaint ¶¶ 13, 25, Exhs. 5, 14; see also Pressman-Gutman Motion to Dismiss at 4-5; Pl.'s Opposition to Motions to Dismiss at 3-4.
One month passed, followed by another, and yet another. Then, on February 8, 2000, more than three months (and, in the case of the first entry, nearly four months) after the agency had acknowledged receipt of the samples from Pressman-Gutman, Customs demanded redelivery of the merchandise from both entries. See Pressman-Gutman Motion to Dismiss at 4-5; Pl.'s Opposition to Motions to Dismiss at 3-4; Pressman-Gutman Response to Cross-Motion at 3; Complaint ¶¶ 14, 26, Exhs. 6, 15. According to the demands for redelivery, the fabric had been misclassified upon entry and had entered the United States under the wrong quota category. See Pressman-Gutman Response to Cross-Motion at 3.
The demands for redelivery directed Pressman-Gutman to either return the merchandise to Customs' custody or submit new visas reflecting the proper quota category from the exporting country. See Pressman-Gutman Response to Cross-Motion at 3. However, because so much time had elapsed between Pressman-Gutman's submission of the requested samples and Customs' demands for redelivery, such visas were no longer available. Id. The passage of time also made it impossible for Pressman-Gutman to return the merchandise to Customs' custody. The goods had already been delivered to the company's customers. See id.; Recording of Oral Argument at 00:13:10.
When Pressman-Gutman failed to redeliver the merchandise to Customs, the agency advised the company that liquidated damages had been incurred. See Pl.'s Opposition to Motions to Dismiss at 4; Complaint ¶¶ 15, 27. After Pressman-Gutman refused to pay the assessment of liquidated damages (on the grounds that the demands for redelivery were untimely), Customs demanded payment from AMICO (Pressman-Gutman's surety), which also refused to pay. See Pl.'s Opposition to Motions to Dismiss at 4; AMICO Cross-Motion at 3-4; Complaint ¶¶ 16, 19, 28, 31, Exhs. 8, 17. The Government then filed this action against Pressman-Gutman and AMICO, seeking the liquidated damages that are assertedly due.
In reviewing a motion to dismiss for failure to state a claim, "any factual allegations in the complaint are assumed to be true and all inferences are drawn in favor of the plaintiff." Amoco Oil Co. v. United States, 234 F.3d 1374, 1376 (Fed.Cir.2000); see generally USCIT Rule 12(b)(5). Dismissal
At the same time, however, a complaint's "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citation omitted). Moreover, "only a complaint that states a plausible claim for relief survives." Iqbal, 556 U.S. at ___, 129 S.Ct. at 1950. And, "[w]here a complaint pleads facts that are `merely consistent with' a defendant's liability, it `stops short of the line between possibility and plausibility of "entitlement to relief."'" Iqbal, 556 U.S. at ___, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 (brackets omitted)).
In the instant case, the nuances of Iqbal and Twombly are purely academic. As detailed below, whether considered under Iqbal, Twombly, or any other standard, it is not just implausible that the Government could prevail in this case; it is impossible.
Pointing to a long and unbroken line of Customs Headquarters rulings stretching back roughly two decades, Pressman-Gutman emphasizes that the agency "has repeatedly and consistently held that Customs officials must issue [any] redelivery notice within thirty days of receiving a sample or other information from the importer in response to a Customs Form 28 ['CF 28' or `Request for Information']." See Pressman-Gutman Reply at 2; see generally id. at 3 n. 4, 7, 9-10; Pressman-Gutman Motion to Dismiss at 2, 6-17.
As Pressman-Gutman notes, the relevant Customs Headquarters rulings "interpret[] two governing regulations [concerning the timing of demands for redelivery] so as to resolve ambiguities therein." See Pressman-Gutman Reply at 2-4; see also Pressman-Gutman Motion to Dismiss at 7, 15-16; HQ 088904 (Feb. 19, 1992) (explaining Customs Headquarters' belief that 19 C.F.R. § 113.62(d) and 19 C.F.R. § 141.113(c) "must be read in conjunction with one another").
The first regulation—19 C.F.R. § 141.113(c)—requires that Customs issue any demand for redelivery of imported merchandise "promptly," but does not define that term. See 19 C.F.R. § 141.113(c). Customs Headquarters rulings explain that the second regulation— 19 C.F.R. § 113.62(d)—gives meaning to the term "promptly." In relevant part, § 113.62(d) expressly requires that "any demand for redelivery . . . be made no later than 30 days after the date that the merchandise was released or 30 days after the end of the conditional release period (whichever is later)." 19 C.F.R. § 113.62(d) (emphasis added). And, finally, Customs Headquarters rulings state unequivocally that—in cases such as this— the "conditional release period" referred to in § 113.62(d) begins when Customs requests that an importer provide a sample or other information, and ends upon Customs' receipt of the requested sample or other information. By regulation, any demand for redelivery must be made no later than 30 days thereafter. See 19 C.F.R. § 113.62(d).
Customs' own series of "Informed Compliance" publications reflects the agency's well-settled reading of 19 C.F.R. § 113.62(d) and 19 C.F.R. § 141.113(c) as requiring that, in a case such as this, any
U.S. Customs and Border Protection, What Every Member of the Trade Community Should Know About: Entry (March 2004) at 15 (emphases added). The Government fails even to acknowledge—much less seek to explain away— this "Informed Compliance" publication and its clear and unqualified articulation of Customs Headquarters' "bright line" rule on the timing of the issuance of demands for redelivery, distilling and succinctly restating the holdings of numerous Customs Headquarters rulings over the years.
Pressman-Gutman cites HQ 115941 as a case with facts "astonishingly similar" to the facts of this case. See Pressman-Gutman Motion to Dismiss at 12; HQ 115941 (May 15, 2003); see generally Pressman-Gutman Motion to Dismiss at 10-12 (discussing HQ 115941). In that case, Customs Headquarters cancelled redelivery notices issued by Customs personnel at the Port of JFK Airport. See HQ 115941.
The importer at issue in HQ 115941 had made three entries of garments under a folklore provision of the Harmonized Tariff Schedule of the United States ("HTSUS") that was free from quota and visa requirements. See HQ 115941. To verify that the merchandise was properly classified and therefore free from quota and visa requirements, Customs timely issued three Requests for Information (CF 28s) to the importer, requesting samples and descriptive literature. Id. The CF 28 relating to the first entry was dated January 12, 2000, while the CF 28s relating to the other two entries were dated February 11, 2000. Id. The importer submitted the requested samples, but explained that no descriptive literature was available. Id. Customs received the sample related to the first entry on February 2, 2000, and received the samples for the two remaining entries on March 8, 2000. Id.
On February 11, 2000, the port issued yet another CF 28 "which was attributed to [the first entry] in Block 5 [of the form] but noted that `[p]ending on [the other two entries] (descriptive literature and catalogues). . . The samples are going to be sent to national import specialist to determine classification and to determine if the items are traditional folk lore exempt from quota.'" See HQ 115941. Thereafter, Customs personnel at the port forwarded the samples and literature (which had been located in the meantime) to the National Commodity Specialist, who concluded that the garments did not qualify as folklore items. Id. Customs personnel at the Port of JFK Airport issued demands for redelivery on April 25, 2000, followed by a demand for liquidated damages on June 7, 2000. Id.
In HQ 115941, Customs Headquarters explained:
HQ 115941 (emphases added).
In the case at bar, the record does not indicate precisely when Customs received the samples submitted by Pressman-Gutman. However, the Complaint avers that the Customs notices advising Pressman-Gutman that the samples had been sent to the laboratory are dated October 15, 1999 and October 25, 1999. See Complaint ¶¶ 13, 25. And both demands for redelivery were issued on February 8, 2000. See Complaint ¶¶ 14, 26. Accordingly, by the Government's own admission, the demands for redelivery in this case were not issued until well over three months after the samples were in Customs' possession. Pressman-Gutman argues that "[u]nder the authority of HQ 115941, the subject redelivery notices were patently untimely, and the Complaint fails to state a cause of action." See Pressman-Gutman Motion to Dismiss at 12.
Moreover, as Pressman-Gutman emphasizes, "the holding of HQ 115941 was not a watershed development." See Pressman-Gutman Motion to Dismiss at 12. To the contrary, the strict time limitations set forth and enforced in HQ 115941 can be traced back in time, to C.S.D. 90-99 and beyond. See generally C.S.D. 90-99 (HQ 732043) (June 28, 1990). In C.S.D. 90-99, one of the seminal rulings on point, Customs Headquarters clearly set forth the time limitation on Customs' request for samples or other information as well as the time limitation on Customs' issuance of any demand for redelivery, and—at the same time—explained the duration of the "conditional release period" for purposes of 19 C.F.R. § 113.62(d):
C.S.D. 90-99 (HQ 732043) (emphasis added).
Further, as Pressman-Gutman explains, Customs Headquarters restated its position in response to industry inquiries about the meaning of C.S.D. 90-99. See generally Pressman-Gutman Motion to Dismiss at 13-14 (discussing HQ 223315 (Sept. 4, 1991); HQ 223535 (Sept. 21, 1992)). And, notwithstanding "widespread resistance from its personnel in the field," a long series of Customs Headquarters rulings has consistently and "steadfastly" maintained the position articulated in C.S.D. 90-99 (HQ 732043)—that is, that, in a case such as this, "the agency has only 30 days from receipt of the sample to issue a redelivery notice." See Pressman-Gutman Motion to Dismiss at 12.
A little more than a year after C.S.D. 90-99 (HQ 732043) was released, Customs issued HQ 223315—a letter authored by the Deputy Commissioner of Customs, addressing questions raised by the Northern Border Customs Brokers Association about the intent of C.S.D. 90-99. See HQ 223315 (Sept. 4, 1991). Reiterating Customs Headquarters' position set forth in C.S.D. 90-99—i.e., that any demand for redelivery must be made no later than 30 days after Customs' receipt of requested samples—HQ 223315 explains:
HQ 223315 (emphasis added).
HQ 223315 was followed by HQ 223535, roughly one year later. HQ 223535—entitled "Issuance of Guidelines on the Time in which Demand for Redelivery Must be Made"—was authored by the Director of the Commercial Rulings Division, in the Office of Regulations and Rulings at Customs Headquarters. See HQ 223535 (Sept. 21, 1992). HQ 223535 once again reinforced the 30-day time limitation on Customs' issuance of demands for redelivery, stating:
HQ 223535 (emphases added).
The District Director of Customs at the Port of Charleston subsequently challenged the time limits set forth by Customs Headquarters in HQ 223315 and HQ 223535, expressing concerns about, inter alia, the "danger" inherent in requiring any demand for redelivery to be issued no more than 30 days after Customs' receipt of requested samples. In HQ 951300, Customs Headquarters acknowledged the legitimacy of the concerns raised, but nevertheless rebuffed the District Director's challenge and reaffirmed the time limitations once more, explaining:
HQ 951300 (Aug. 3, 1993) (emphases added).
The Customs Headquarters rulings discussed above have never been modified or revoked to date. Indeed, Customs Headquarters has continued to consistently articulate and apply the time limitations discussed above set forth therein in a wide range of rulings interpreting 19 C.F.R. § 141.113(c) (which requires that any demand for redelivery be issued "promptly") and/or 19 C.F.R. § 113.62(d) (which requires, inter alia, that any demand for redelivery be made "no later than 30 days. . . after the end of the conditional release period"—i.e., no later than 30 days after Customs' receipt of requested samples). See, e.g., HQ 224872 (July 5, 1994); HQ 225319 (July 26, 1994); HQ 226218 (March 19, 1996); HQ114693 (Dec. 10, 1999); HQ 115941 (May 15, 2003); HQ W968383 (March 2, 2007).
The Government raises several arguments in an effort to establish the timeliness of the demands for redelivery at issue in this action. But none of the Government's arguments casts a different light on the long and consistent line of rulings by Customs Headquarters discussed above.
The Government first invokes 19 C.F.R. § 113.62(d), which requires (in relevant part) that "any demand for redelivery . . . be made no later than . . . 30 days after the end of the conditional release period." See 19 C.F.R. § 113.62(d). The Government asserts that "nothing in the language of § 113.62(d) . . . prevent[ed] [the individual Customs staffer at issue in this action] from extending the conditional release period so long as a demand for redelivery is made within 30 days after the [conditional release] period ends." See Pl.'s Opposition to Motions to Dismiss at 5; see also id. at 10. However, the Government's position is squarely at odds with settled agency practice.
Although the Government seeks to focus on the language of 19 C.F.R. § 113.62(d), the text of the regulation itself, standing alone, is not determinative, because the regulation leaves the term "conditional release period" undefined. Pressman-Gutman points to the "consistent and longstanding interpretation[]" of § 113.62(d) reflected in the rulings of Customs Headquarters, holding that the "conditional release period" ends with Customs' receipt of a requested sample and requiring the issuance of any demand for redelivery within 30 days thereafter. See Pressman-Gutman Motion to Dismiss at 2; see generally id. at 6-17 (analyzing long line of rulings by Customs Headquarters interpreting "conditional release period" as that phrase is used in 19 C.F.R. § 113.62(d)); Pressman-Gutman Reply at 2, 3 n. 4, 7, 9-10 (same).
In contrast to the Customs Headquarters rulings cited by Pressman-Gutman, the Government cites no case law or Headquarters rulings (or any other authority) to refute Pressman-Gutman's claim that the conditional release periods ended when Customs received the requested samples in this case. Nor does the Government
Thus, under the extant Customs Headquarters rulings, the demands for redelivery in this case were untimely, as Pressman-Gutman claims. Pursuant to the unambiguous and unequivocal holdings of those Headquarters rulings, the conditional release periods in this case began on September 29, 1999 and October 15, 1999 (when Customs requested samples from the first and second entries, respectively), and ended when Customs received the samples from Pressman-Gutman at some point before October 15, 1999 and October 25, 1999 (the dates when Customs acknowledged receipt of the samples). The demands for redelivery were not issued until February 8, 2000, however—much more than 30 days after the samples were received
Significantly, there is no claim here that Customs Headquarters could not interpret the phrase "conditional release period" (as it is used in 19 C.F.R. § 113.62(d)) to extend beyond Customs' receipt of samples. Pressman-Gutman argues only that Customs Headquarters has resolutely declined to do so in the past. There is therefore no need to reach that question here.
To be sure, Customs—like any agency—is free to change its interpretation of its regulations. But any such change in interpretation must be effected properly, in accordance with the law. As the U.S. Court of Appeals for the D.C. Circuit has underscored, "an agency changing its course must supply a reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored, and if an agency glosses over or swerves from prior precedents without discussion it may cross the line from the tolerably terse to the intolerably mute." Bush-Quayle '92 Primary Committee, Inc. v. Federal Election Comm'n, 104 F.3d 448, 453 (D.C.Cir.1997) (quoting Greater Boston Tel. Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.1970)); Grace Petroleum Corp. v. Federal Energy Regulatory Comm'n, 815 F.2d 589, 591 (10th Cir.1987) (same). Thus, "[a]n agency interpretation that would otherwise be permissible is, nevertheless, prohibited when the agency has failed to explain its departure from prior precedent." Bush-Quayle '92 Primary Committee, 104 F.3d at 453 (citations omitted).
In the case at bar—as in Acadian Gas— the agency "has failed to acknowledge even that a departure from past practice has occurred," much less to proffer any rationale for the change. See Acadian Gas Pipeline Sys. v. Federal Energy Regulatory Comm'n, 878 F.2d 865, 868 (5th Cir.1989) (rejecting agency's "newly stated interpretation" as "an arbitrary, capricious departure from past practice").
Moreover, the record reveals nothing special or unusual about these transactions. Nor is there any indication of any significant changes in circumstances in the trade or in the regulatory environment which might suffice to justify a change in Customs' interpretation of the regulations at issue. See, e.g., Harrington v. Chao, 280 F.3d 50, 60-61 (1st Cir.2002) (holding that Labor Department's rationale for change in interpretation of agency regulation at issue must "explain whether changing labor market economics justify a modification of prior interpretation or a building construction trades exception to it, or what the other reasons for the change are") (emphases added).
Apart from its argument based on 19 C.F.R. § 113.62(d) (discussed above), the Government also invokes the other regulation at issue— § 141.113(c), which requires Customs to make demands for redelivery "promptly." See 19 C.F.R. § 141.113(c). Specifically, the Government asserts that "[n]o specific time limit is provided for the port director to demand redelivery . . ., but only that the demand for redelivery be
The Government cites no authority whatsoever to support its claim that the demands for redelivery in this case were made "promptly," as required by 19 C.F.R. § 141.113(c). Nor can the Government do so. Interpreting applicable Customs regulations, Customs Headquarters has authoritatively and consistently ruled that—in cases such as this—"promptly" means no later than 30 days following the agency's receipt of requested samples.
Thus, under the extant Customs Headquarters rulings, the demands for redelivery in this case were not made "promptly," contrary to the Government's claims. Under the clear holdings of the rulings of Customs Headquarters, the requirement in 19 C.F.R. § 141.113(c) that demands for redelivery be made "promptly" mandates that, in a case such as this, any such demands be issued no later than 30 days following the agency's receipt of requested samples. In the instant case, Customs received the samples from Pressman-Gutman no later than October 15, 1999 and October 25, 1999 (when Customs acknowledged receipt of the samples from the first and second entries, respectively). However, the demands for redelivery were not issued until February 8, 2000—much more than 30 days later.
Customs (like any other agency) is, of course, free to change its interpretation of its regulations—provided that the agency follows the proper procedure, which Customs in this instance did not. See generally section I.C.1.a, supra (summarizing procedural and substantive legal requirements to be met where agency wishes to change its interpretation of a regulation). Pressman-Gutman notably does not claim that Customs Headquarters could not interpret the term "promptly" (as that term is used in 19 C.F.R. § 141.113(c)) to mean a period of more than 30 days following Customs' receipt of samples. Pressman-Gutman argues only that Customs Headquarters has repeatedly refused to adopt such an interpretation in the past. That suffices to resolve the issue presented here.
In what seems to be its principal argument for the timeliness of the demands for redelivery in this case, the Government seizes on a phrase that appears in an internal agency memorandum and in two Customs Headquarters rulings (all of which date back nearly two decades), indicating that "Customs has an additional 30 days from the date of receipt of the sample within which to demand redelivery or take other appropriate action." See Pl.'s Opposition to Motions to Dismiss at 5 (emphasis added); see also id. at 10-13, 21; Memorandum to Deputy Commissioner of Customs from Assistant Commissioner, Office of Commercial Operations, re: "C.S.D. 90-99,
The Government's theory is that the demands for redelivery at issue in this action are valid even though the demands were not made within 30 days of the agency's receipt of Pressman-Gutman's samples, because a Customs staffer at the Port of JFK Airport instead took "other appropriate action" by "notif[ying] Pressman (by way of Form 28) that the samples had been sent to the laboratory for analysis, and that the conditional release period was extended for 90 days pending laboratory analysis of the samples." See Pl.'s Opposition to Motions to Dismiss at 11; see also id. at 5, 10-13. Significantly, however, the Government cites no case law or Customs Headquarters rulings to support its claim that the actions of the Customs staffer here excused the agency from issuing a demand for redelivery within 30 days of the agency's receipt of the requested samples. Nor is there any authority to suggest that the reference to "other appropriate action" in any of the three documents was intended to effectively eviscerate the hard-and-fast 30-day limitation on the issuance of demands for redelivery set forth in 20 years of Customs Headquarters rulings. In fact, all authority is quite to the contrary.
The Government points to a September 3, 1991 memo from the Assistant Commissioner of the Office of Commercial Operations, addressed to the Deputy Commissioner of Customs, transmitting a draft of HQ 223315 (which is the Deputy Commissioner's response to a letter from the Northern Border Customs Brokers Association seeking clarification as to the effect of C.S.D. 90-99 (HQ 732043) on the limitations on the timing of demands for redelivery). See September 3, 1991 Memo; Pl.'s Opposition to Motions to Dismiss at 11-12; see also Pressman-Gutman Reply at 9 n. 7.
September 3, 1991 Memo (emphases added).
HQ 223535 definitively disposes of the Government's theory. See HQ 223535 (Sept. 21, 1992) (entitled "Issuance of Guidelines on the Time in which Demand for Redelivery Must be Made"). As explained above in the introduction to this section (i.e., section I.C), HQ 223535 memorializes the recommendation of the Director of the Commercial Rulings Division in Customs Headquarter's Office of Regulations and Rulings that a Customs Directive be issued to agency personnel in the field concerning "the time within which Customs may demand redelivery of merchandise." See HQ 223535. HQ 223535 specifically refers to HQ 223315 (dated September 4, 1991)—the final version of the draft letter transmitted by the September 3, 1991 Memo on which the Government relies—and expressly restates the position set forth in HQ 223315 (that is, that "Customs has 30 days from the release of merchandise within which to request information about, or a sample of, the merchandise," and that "[i]f such a request is made, Customs has a second 30-day period from the date of receipt of the information or sample within which to demand redelivery or take other appropriate action"). See HQ 223535 (emphasis added); see also HQ 223315; September 3, 1991 Memo. In the very next paragraph, however, HQ 223535 states flatly and unequivocally—with no hedging whatsoever—that the regulatory requirement that a demand for redelivery be issued "promptly" means that any such demand must be issued "within 30 days from the date of receipt by Customs of the [requested] information or sample." Period. Full stop. See HQ 223535.
Thus, whatever other measure(s) the phrase "other appropriate action" may authorize, HQ 223535 makes it clear that, contrary to the Government's assertions, that phrase cannot be read to alter in any way Customs Headquarters' strict requirement that any demand for redelivery be made no later than 30 days after the agency's receipt of a requested sample (or other information). To the same effect are numerous other Customs Headquarters rulings that post-date the September 3, 1991 Memo, which—like HQ 223535—state flatly (with no hedging, no caveat, no equivocation, and no reservation) that any demand for redelivery must be issued within 30 days after Customs' receipt of a sample or other requested information. Those additional rulings include HQ W968383, which Customs Headquarters issued even as the Government was preparing its response to Pressman-Gutman's Motion to Dismiss in this action. See Pressman-Gutman Reply at 11 (emphasizing that, "after [Pressman-Gutman] filed its Motion to Dismiss, Customs Headquarters again rejected efforts by the Port of JFK to enforce a redelivery notice more than thirty days after Customs received a sample"); HQ W968383 (March 2, 2007) (explaining that regulatory requirement that demand for redelivery be made "promptly" mandates that, "if information or a sample is requested," any demand for redelivery must be issued "within thirty days from the date of receipt by [Customs] of the information or sample").
At times, the Government seems to intimate that Customs Headquarters is ignorant of, or has been deaf to, the concerns of Customs personnel that, in some cases (as in this case), analysis may not be completed within 30 days after Customs' receipt of samples. To the contrary, Customs Headquarters has expressly acknowledged those concerns (in the September 3, 1991 Memo, and thereafter), and has nevertheless elected to repeatedly reinforce the 30-day limitation on issuance of demands for redelivery.
In HQ 951300, for example, Customs Headquarters responded to a request for reconsideration of HQ 088904 made by the District Director of the Port of Charleston. See HQ 951300 (Aug. 3, 1993) (expressly acknowledging that 30 days may be insufficient to complete analysis in some cases, but nevertheless reaffirming 30-day limitation on issuance of demand for redelivery); see also HQ 088904 (Feb. 19, 1992). In ruling on the request for reconsideration, Customs Headquarters explicitly recognized "[t]he danger of limiting the time period to decide admissibility to 30 days from the receipt of the sample," and noted that the concern had been raised and considered even prior to the issuance of HQ 223315 on September 4, 1991, and, moreover, had been raised with the Assistant Commissioner once again in the context of the District Director's request for reconsideration. See HQ 951300; HQ 223315 (Sept. 4, 1991). Still, HQ 951300 advised that "the Assistant Commissioner upheld the prior position on the time in which demand for redelivery must be made." See HQ 951300. Indeed, in its rulings, Customs Headquarters has emphasized time and again that its position limiting the time for issuance of a demand for redelivery has been "thoroughly considered." See, e.g., HQ 951300 (explaining that "the matter was thoroughly considered prior to the issuance of HQ 088904"); HQ 225319 (July 26, 1994) (stating that Customs' Headquarters' "interpretation of [19 C.F.R. § 113.62(d) and § 141.113(c)] has been thoroughly considered"); HQ W968383 (March 2, 2007) (same); HQ
In short, contrary to the Government's implication, Customs Headquarters has long been keenly aware of the fact that, in some cases (like this one), analysis may not be completed within 30 days after the agency receives requested samples. Nevertheless, Customs Headquarters has repeatedly and consistently ruled that any demands for redelivery must be made within that 30-day period; and Customs Headquarters has not hesitated to void demands for redelivery issued thereafter. See, e.g., HQ 114693 (Dec. 10, 1999) (voiding as "not timely" and "unenforceable" a demand for redelivery made more than 30 days following Customs' receipt of sample, even though Customs did not receive lab report until after 30-day period had expired).
The Government also conspicuously fails to explain why—if, in fact, the 30-day limitation on issuance of a demand for redelivery could be avoided simply by a Customs staffer's unilateral issuance of a CF 28 imposing a further conditional release period of some duration, at the staffer's discretion—that option was never articulated or identified as "other appropriate action" in even a single Customs Headquarters ruling issued over the past two decades, particularly since such an option would have allayed anxious agency staffers.
In addition to the legal arguments that it advances, the Government also attempts to distinguish the facts of this case from those in the long and unbroken line of Customs Headquarters rulings on which Pressman-Gutman relies. See generally Pl.'s Opposition to Motions to Dismiss at 10, 13-15; see also id. at 20 (asserting that instant case is "not in conflict with the earlier rulings" by Customs Headquarters). Specifically, the Government tries to make much of the fact that "[n]one of the authorities relied on by Pressman addressed a situation in which Customs, within 30 days after receipt of samples of merchandise, notified the importer that the conditional release period was extended to allow for laboratory analysis of the samples." See id. at 10. But the Government's broad-brush attempts to dismiss the impressive line of Customs Headquarters precedent are unavailing.
It is true that, as the Government indicates, there is no ruling by Customs Headquarters "on all fours" with the facts of this case. However, contrary to the Government's implication, the anomalous nature of these facts affords no support for the Government's position. The Government makes no claim that, prior to this case, any Customs staffer has ever even attempted to affirmatively impose a conditional release period beyond the agency's receipt of requested samples. The fact that no such case is reflected in approximately two decades of rulings by Customs Headquarters speaks volumes to the uniformity, clarity, and decisiveness of Headquarters' long-held and oft-repeated position on the timing of the issuance of demands for redelivery.
In this action, the Government seeks to collect $120,000 in liquidated damages from Pressman-Gutman and AMICO, for Pressman-Gutman's alleged breach of the terms of its customs bond. According to the Government's Complaint, Pressman-Gutman breached the terms of its bond by failing to return two entries of merchandise to Customs' custody notwithstanding demands for redelivery of the goods. As discussed above, however, the demands for redelivery were issued more than 30 days after Customs' receipt of requested samples, when the "conditional release period" ended. The demands for redelivery were thus untimely and invalid, and Pressman-Gutman's failure to make redelivery did not constitute a breach of the terms of its bond.
Besides joining in Pressman-Gutman's Motion to Dismiss, AMICO also seeks other relief by cross-motion. See AMICO Cross-Motion at 1-2, 5-7. AMICO first requests that Pressman-Gutman be ordered to deposit funds in the amount of $120,000 with AMICO as collateral security, based upon Customs' demands against AMICO in connection with the agency's demands for redelivery of Pressman-Gutman's merchandise. Id. at 1-5, 7. In addition, AMICO requests that Pressman-Gutman be ordered to reimburse a total of $13,246.80 as "reasonable attorney's fees" and expenses, as invoiced by Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP ("GDLSK") and the Law Offices of Michael P. O'Connor. See id. at 2, 6-7; AMICO Cross-Motion, Affirmation in Support of Attorney's Fees of Edward B. Ackerman, Esq. ("Ackerman Aff."), Exh. 1; AMICO Cross-Motion, Affirmation of Michael P. O'Connor, Esq. ("O'Connor Aff."), Exh. 1.
The dismissal of the Government's Complaint moots AMICO's motion requesting that Pressman-Gutman be ordered to deposit $120,000 as collateral security. See section I.D, supra. Accordingly, the sole outstanding issue is AMICO's claim against Pressman-Gutman for attorneys' fees and expenses under the indemnity agreement.
Pressman-Gutman maintains that GDLSK had a conflict of interest that should have precluded the firm from representing AMICO. See Pressman-Gutman Response to Cross-Motion at 2, 13-18. Pressman-Gutman contends that all claims for attorneys' fees and expenses relating to GDLSK's representation of AMICO—whether incurred by the Law Offices of Michael P. O'Connor or by GDLSK itself—thus must be denied. See id. at 2, 18-20. Pressman-Gutman also objects to payment of certain other fees invoiced by the Law Offices of Michael P. O'Connor, including fees for work related to cases other than the instant action, and a $200 filing fee. See id. at 2, 20 & n. 14.
As discussed in greater detail below, AMICO raises virtually no defense to Pressman-Gutman's conflict of interest claims, which have substantial merit. Accordingly, AMICO's Cross-Motion for Collateral Security and Attorney's Fees must be granted in part, and denied in part.
Companies that import commercial merchandise into the United States are required, with few exceptions, to post a bond to ensure that all regulatory and statutory obligations associated with the importation of that merchandise are satisfied. See 19 C.F.R. § 113; see also AMICO Cross-Motion at 2. Several years before the entry of the merchandise at issue in this action, at Pressman-Gutman's request, AMICO executed and delivered to Customs a continuous customs bond in the amount of $120,000, to guarantee Pressman-Gutman's obligations to the United States. See id. at 2-3; Complaint, Exh. 1. It is that bond which is at issue in this action.
AMICO Cross-Motion at 3, Exh. B (emphases added).
As discussed in section I.A above, in early February 2000, Customs made demands for redelivery of two entries of fabric more than four months after the merchandise had been imported by Pressman-Gutman, and more than three months after Pressman-Gutman had provided samples of the goods for analysis in response to Customs' requests. See Pressman-Gutman Response to Cross-Motion at 3.
According to the demands for redelivery, the merchandise had been misclassified upon entry, and had entered the United States under the wrong quota category. See Pressman-Gutman Response to Cross-Motion at 3. In the demands for redelivery, Customs directed Pressman-Gutman to either return the merchandise to the agency's custody or submit new visas reflecting the proper quota category from the exporting country. See id. However, because of Customs' delays in issuing the demands for redelivery, Pressman-Gutman was unable to obtain new visas or to redeliver the merchandise. See id.; Recording of Oral Argument at 00:13:10. As a result, in early 2000, Customs initiated administrative proceedings seeking liquidated damages from Pressman-Gutman in connection with the bond covering the entries in question. See Pressman-Gutman Response to Cross-Motion at 3-4.
Pressman-Gutman retained the law firm Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP ("GDLSK") to represent it in the disputes with Customs concerning the two subject entries of merchandise, also in early 2000. See Pressman-Gutman Response to Cross-Motion at 4. In connection with its representation of Pressman-Gutman, GDLSK's actions included:
See Pressman-Gutman Response to Cross-Motion at 4.
When Pressman-Gutman refused to pay Customs' assessment of liquidated damages, Customs made a series of formal demands—beginning in mid-November 2004, and continuing through mid-January 2005—against the bond that AMICO had executed on Pressman-Gutman's behalf. See AMICO Cross-Motion at 3; Pl.'s Opposition to Motions to Dismiss at 4; Complaint ¶¶ 16, 19, 28, 31, Exhs. 8, 17. AMICO, in turn, forwarded Customs' demands to Pressman-Gutman, pressing Pressman-Gutman to post security in accordance with the terms of the collateral security clause of the indemnity agreement, to secure AMICO's potential obligations to Customs under the bond. See AMICO Cross-Motion at 3-4; Pressman-Gutman Response to Cross-Motion at 4-5. AMICO explained that it was contractually obligated to pay the demands to Customs, and that it risked sanctions (including a prohibition on underwriting customs bonds) if it failed to meet its contractual obligations. See Pressman-Gutman Response to Cross-Motion at 5. AMICO threatened Pressman-Gutman that AMICO would "proceed with settlement of this claim with [Customs]" unless Pressman-Gutman provided AMICO with "proof of petition, offer in compromise, payment or cancellation of the [liquidated damages claim]" asserted by Customs. See AMICO Cross-Motion, Barther Affirmation ("Barther Aff."), Exh. 2.
Pressman-Gutman refused AMICO's requests that it post collateral security. See AMICO Cross-Motion at 4. However, Pressman-Gutman (through its second law firm, Coudert Brothers, which replaced GDLSK in early 2005) urged Customs— and, later, the Department of Justice—to rescind Customs' demands against AMICO until a determination was reached in Pressman-Gutman Co., Inc. v. United States, Court No. 04-00511 (the action that GDLSK filed on Pressman-Gutman's behalf, challenging the validity of Customs' demands for redelivery). See Pressman-Gutman Response to Cross-Motion at 5.
Although Pressman-Gutman was not successful in having Customs' demands against AMICO rescinded, the liquidated damages cases were forwarded to Customs' lawyers, who were instructed to seek waivers of the statute of limitations from Pressman-Gutman and AMICO. See
In the course of discussions that Pressman-Gutman's counsel had with AMICO concerning the possibility of waiving the statute of limitations, AMICO indicated that it was considering asking GDLSK to evaluate the strength of Pressman-Gutman's submissions to Customs and the Department of Justice. See Pressman-Gutman Response to Cross-Motion at 6 n. 5. According to Pressman-Gutman, "[t]hat was the first of many times where [AMICO] was advised that GDLSK was conflicted from representing [AMICO] in this matter because GDLSK itself prepared the administrative petitions and filed Pressman-Gutman's lawsuit contesting the denial of the protest." See id.
Customs' lawyers advised that, without waivers of the statute of limitations from both AMICO and Pressman-Gutman, the agency would be forced to file suit on the liquidated damages claims. See Pressman-Gutman Response to Cross-Motion at 6. Pressman-Gutman nevertheless continued to seek a negotiated resolution; but its efforts met with no success. See id. at 6-7. Accordingly, the Government filed the instant lawsuit—exactly six years to the day after Customs made the demands for redelivery at issue in this action. See id. at 7.
The following week, AMICO sent a letter to Pressman-Gutman demanding that Pressman-Gutman post collateral security in the amount of $170,000, an amount calculated by AMICO to cover its potential exposure to Customs under the bond, as well as potential interest and "anticipated legal fees." See Pressman-Gutman Response to Cross-Motion at 7. Pressman-Gutman then retained the law firm Neville Peterson LLP to handle this matter. See id.
Negotiations followed concerning the possibility of establishing an escrow account as collateral security, but the parties were unable to reach an agreement. See Pressman-Gutman Response to Cross-Motion at 7. In the course of those negotiations, Pressman-Gutman learned that AMICO had in fact retained GDLSK to represent it against Pressman-Gutman in this matter. See id. Neville Peterson informed AMICO and GDLSK on several occasions that GDLSK was conflicted from representing AMICO. See id. Nevertheless, on March 3, 2006, GDLSK entered a Notice of Appearance in this action on behalf of AMICO. See id. at 7-8; Notice of Appearance (March 3, 2006).
Pressman-Gutman promptly moved to disqualify GDLSK as AMICO's counsel in this matter. See generally Defendant Pressman-Gutman Co.'s Motion to Disqualify; Defendant Pressman-Gutman Co., Inc.'s Memorandum of Law in Support of Its Motion to Disqualify ("Pressman-Gutman Motion to Disqualify"); see also Pressman-Gutman Response to Cross-Motion at 8. In lieu of responding to that motion, GDLSK withdrew its appearance, and the Law Offices of Michael P. O'Connor were substituted as counsel for AMICO. See Notice of Substitution of Attorney (April 26, 2006); see also Pressman-Gutman Response to Cross-Motion at 8. Pressman-Gutman then withdrew its Motion to Disqualify as moot. See Letter from Counsel for Pressman-Gutman re: Withdrawal of Motion to Disqualify (May 3, 2006); see also Pressman-Gutman Response to Cross-Motion at 8.
In the meantime, in a letter sent in early March 2006, Pressman-Gutman had advised
Although AMICO replaced GDLSK as counsel in this litigation after Pressman-Gutman moved to disqualify the firm, AMICO's Cross-Motion seeks not only to have Pressman-Gutman post $120,000 as collateral security, but also to have Pressman-Gutman reimburse AMICO for attorneys' fees and expenses for services rendered by GDLSK prior to the firm's withdrawal. See AMICO Cross-Motion at 6-7; AMICO Cross-Motion, Ackerman Aff., Exh. 1 (invoice for fees and expenses totaling $5,181.30). In addition, the Cross-Motion seeks reimbursement for attorneys' fees and expenses for services rendered by the Law Offices of Michael P. O'Connor. See AMICO Cross-Motion at 2, 6-7; AMICO Cross-Motion, O'Connor Aff., Exh. 1 (invoice for fees and expenses totaling $8,065.50).
Under the language of the indemnity agreement's collateral security clause, Pressman-Gutman undertook to indemnify AMICO for "any and all ... attorney's fees and expenses ... which [AMICO] shall at any time incur by reason of its execution of any bond ... or its liability to pay any claim." AMICO Cross-Motion, Exh. B. Courts have sustained and enforced similar agreements, and similar provisions, in other cases. See, e.g., AMICO v. Pennsylvania Beads Corp., 983 F.Supp. 437, 442 (S.D.N.Y.1997) (granting attorneys' fees to surety, based on indemnity agreement including provision comparable to that in this case); see also AMICO Cross-Motion at 5.
Pressman-Gutman does not here challenge the validity of collateral security clause, or the indemnity agreement as a whole. Nor does Pressman-Gutman dispute that attorneys' fees and expenses are covered by the collateral security clause of that agreement. However, Pressman-Gutman vigorously contests $7,564.74 of the $13,246.80 that AMICO seeks as reimbursement for attorneys' fees and expenses. See generally Pressman-Gutman Response to Cross-Motion at 2, 13-20. Specifically, Pressman-Gutman disputes the entire $5,181.30 that AMICO claims as attorneys' fees and expenses for services rendered to AMICO by GDLSK. See id. at 2, 13-19; AMICO Cross-Motion, Ackerman Aff., Exh. 1. Pressman-Gutman similarly contests AMICO's Cross-Motion as to $2,383.44 of the $7,865.50 in fees and expenses invoiced by the Law Offices of Michael P. O'Connor—in particular, fees for services involving GDLSK's continued participation in this action, fees for work relating to cases other than the instant action, and a $200 filing fee. See Pressman-Gutman Response to Cross-Motion at 2, 18-20 & n. 14; AMICO Cross-Motion, O'Connor Aff., Exh. 1.
Pressman-Gutman's defense to AMICO's cross-claim for attorneys' fees and expenses is predicated largely on Pressman-Gutman's claim that AMICO's representation
Pressman-Gutman argues that—absent Pressman-Gutman's consent, after full disclosure—GDLSK was barred from representing AMICO in this matter, because AMICO's interests were materially adverse to those of Pressman-Gutman. See Pressman-Gutman Response to Cross-Motion at 2, 14-18; see also Pressman-Gutman Motion to Disqualify at 1, 7-11. According to Pressman-Gutman, "[a]ny other result would create a meaningful possibility that secrets and other privileged information GDLSK learned during its representation of [Pressman-Gutman] in this matter might be passed on to, and exploited by, its adverse co-defendant," AMICO. See Pressman-Gutman Motion to Disqualify at 10; see also id. at 6 (emphasizing that GDLSK "received considerable confidential information" in the course of its representation of Pressman-Gutman).
In support of its assertions, Pressman-Gutman points to Disciplinary Rule ("DR") 5-108 of the New York Lawyer's Code of Professional Responsibility, entitled "Conflict of Interest—Former Client," which governs an attorney's continuing duty to a former client. See generally 22 N.Y.C.R.R. § 1200.27, New York Lawyer's Code of Professional Responsibility, Disciplinary Rule 5-108 ("DR 5-108"); see also ABA Model Rules of Professional Conduct Rule 1.9; Pressman-Gutman Response to Cross-Motion at 14-17; Pressman-Gutman Motion to Disqualify at 1, 7-11.
DR 5-108 states, in pertinent part:
DR 5-108 (emphases added). Pressman-Gutman maintains that, by representing AMICO (the surety) in this matter without first obtaining a waiver from Pressman-Gutman (the principal), GDLSK violated DR 5-108(A), because GDLSK previously represented Pressman-Gutman in this same matter, and the interests of the principal and the surety are materially adverse. See Pressman-Gutman Response to Cross-Motion at 14. As discussed in greater detail below, AMICO offers essentially no defense to Pressman-Gutman's assertions. Based on the existing record, an analysis of each of the three key elements of DR 5-108(A) validates Pressman-Gutman's claims.
As to the first element of DR 5-108(A), it is abundantly clear that Pressman-Gutman never gave its consent to GDLSK's representation of AMICO; nor did Pressman-Gutman in any way waive any conflict of interest arising out of that representation. See Pressman-Gutman Response to Cross-Motion at 14; Pressman-Gutman Motion to Disqualify at 1, 7-8.
The second element of DR 5-108(A) concerns the relationship between the attorney's prior engagement and the subsequent one—that is, whether the subsequent engagement involves "the same or a substantially related matter." See DR 5-108(A); see also Solow v. W.R. Grace & Co., 83 N.Y.2d 303, 610 N.Y.S.2d 128, 632 N.E.2d 437, 438-39 (1994); Revise Clothing, Inc. v. Joe's Jeans Subsidiary, Inc., 687 F.Supp.2d 381, 392 (S.D.N.Y.2010) (explaining that "if the facts giving rise to an issue which is material in both the former and the present litigations are as a practical matter the same, then there is a `substantial relationship' between the representations") (citation omitted).
As Pressman-Gutman explains, it is beyond cavil that GDLSK's two engagements (by Pressman-Gutman, and then by AMICO) involved "the same or a substantially related matter" within the meaning of DR 5-108(A). See generally Pressman-Gutman Response to Cross-Motion at 14-15. AMICO does not dispute this point. See generally AMICO Cross-Motion; O'Connor Reply Aff.
Although GDLSK never represented Pressman-Gutman in the instant lawsuit, GDLSK plainly represented Pressman-Gutman in this same matter. GDLSK was retained by Pressman-Gutman in 2000, and—on Pressman-Gutman's behalf—filed a protest challenging Customs' demands for redelivery (which are at the heart of this lawsuit) in administrative proceedings before the agency, from start to finish. See Pressman-Gutman Response to Cross-Motion at 14; Complaint, Exh. 9 (Protest, dated March 29, 2000 and signed by GDLSK attorney, with GDLSK's name and address listed on behalf of Pressman-Gutman as the "Person To Whom Any Notice of Approval or Denial Should Be Sent"); Pressman-Gutman Motion to Disqualify at 3, Exh. 2 (Customs letter addressed to GDLSK, dated April 16, 2004, denying Protest).
Then, after Customs denied Pressman-Gutman's protest in April 2004, GDLSK filed a lawsuit in this court—on Pressman-Gutman's behalf—challenging the denial of the protest and arguing, inter alia, that the demands for redelivery (which directly gave rise to the claims for liquidated damages at issue in the instant lawsuit) were untimely and invalid. See Pressman-Gutman Response to Cross-Motion at 14-15; Complaint, Exh. 9 (Summons filed in Court No. 04-00511, dated October 12, 2004, listing GDLSK's contact information as "Name, Address and Telephone Number of Plaintiff's Attorney").
In addition, again on Pressman-Gutman's behalf, GDLSK filed a request asking that Customs reconsider the agency's classification ruling letter (which had supported the allegations of misclassification in the demands for redelivery). See Pressman-Gutman Response to Cross-Motion at 15; HQ 963787 (Sept. 4, 2002) (Customs Headquarters ruling, addressed to GDLSK, denying Pressman-Gutman's request for reconsideration of classification ruling N.Y. F82252).
Even from such summary descriptions, it seems patently obvious that, in each of the above-referenced capacities, GDLSK was representing Pressman-Gutman in the "same ... matter" as that in the instant lawsuit. And, even if they did not involve the "same ... matter," they are undeniably "substantially related." Either way, the second element of DR 5-108(A) is satisfied.
AMICO's bald, conclusory assertion that "a conflict had not [yet] arisen" can carry no weight. Moreover, the assertion simply is not borne out by the existing record. The record (admittedly developed with essentially no input from AMICO) indicates that the interests of Pressman-Gutman and AMICO are—and, at all times relevant here, were—"materially adverse." See generally Pressman-Gutman Response to Cross-Motion at 15-16.
Perhaps the most obvious proof of the "material adversity" of interests are the cross-claims against Pressman-Gutman included with AMICO's Answer in this action, and AMICO's Cross Motion for Collateral Security and Attorney's Fees (which is decided herein). Although the interests of both Pressman-Gutman and AMICO would be satisfied if Pressman-Gutman ultimately prevailed against the Government in this action, AMICO's principal interest naturally has always been in ensuring that AMICO suffers no loss whatever the consequences of any litigation for Pressman-Gutman. Under such circumstances, the interests of the parties are, by definition, materially adverse. See generally Pressman-Gutman Response to Cross-Motion at 16.
Based on DR 5-108(A) and GDLSK's prior representation of Pressman-Gutman, GDLSK has at all times been conflicted from representing AMICO in this action. Cf. Pyle v. Meritor Savings Bank, 1993 WL 483196 * 1-2 (E.D.Pa.1993) (ruling that law firm that represented both bank and bank officers as co-defendants in lawsuit was disqualified from representing all co-defendants in same lawsuit after interests of bank diverged from interests of bank officers). As the New York Court of Appeals has explained:
DR 5-108(A)'s bar on "successive representation" prohibited GDLSK from representing AMICO here, because AMICO's interests were in direct conflict with those of Pressman-Gutman, which GDLSK had previously represented in this very same matter. See generally, e.g., In re American Airlines, 972 F.2d 605, 620-21, 627-28 (5th Cir.1992) (issuing writ of mandamus instructing district court to grant party's motion to disqualify its former counsel from representing its competitor in antitrust litigation between the parties).
Pressman-Gutman argues that it would "compound[ ][the] injustice" of GDLSK's violation of its ethical obligations vis-a-vis Pressman-Gutman to require Pressman-Gutman to enforce the collateral security clause of the indemnity agreement by forcing Pressman-Gutman to compensate GDLSK for its conflicted representation of AMICO in this matter. See Pressman-Gutman Response to Cross-Motion at 19 (quoting Image Tech. Service, Inc. v. Eastman Kodak Co., 136 F.3d 1354, 1359 (9th Cir.1998)). Pressman-Gutman similarly contends that—because AMICO knew of the conflict of interest when it retained GDLSK to represent it in this matter— Pressman-Gutman should not be required to reimburse AMICO for the attorneys' fees and expenses charged by GDLSK. See id. at 2, 18-19.
Except to accuse Pressman-Gutman of "selectively deciding which requirements of the indemnity agreement it will comply with," AMICO makes no attempt to refute any aspect of Pressman-Gutman's argument. See O'Connor Reply Aff. at ¶¶ 10-11; see generally AMICO Cross-Motion.
In other cases in a wide variety of contexts where lawyers or law firms have committed ethical violations, federal and state courts have refused to enforce the terms of fee agreements, and have reduced awards of attorneys' fees and expenses or denied them altogether. In Louima v. City of New York for example, the U.S. Court of Appeals for the Second Circuit upheld the district court's ruling reducing attorneys' fees by 30% due to counsel's disclosure of client secrets to the press, in violation of disciplinary rules. See Louima v. City of New York, 2004 WL 2359943 * 2-3, 75-76, 88, 90 (E.D.N.Y.2004), aff'd, 163 Fed.Appx. 70 (2d Cir.2006) (and cases cited there)
In Marshall v. State of New York Division of State Police, the court was confronted with issue of whether a conflicted firm "should recover fees for work that it never should have undertaken." See Marshall v. State of New York Div. of State Police, 31 F.Supp.2d 100, 109 (N.D.N.Y. 1998). The court reduced the award of attorneys' fees by 50%, noting that "an attorney should be permitted to claim fees `only for services provided before the conflict arose and the ethical breach occurred.'" See id., 31 F.Supp.2d at 109-10 (citation omitted).
In Image Technical Service—a conflict of interest case, like the case at bar—the law firm of Coudert Brothers was found to have violated its duty of loyalty to Kodak by representing the plaintiff in its antitrust case against Kodak. See Image Tech. Serv., Inc. v. Eastman Kodak Co., 136 F.3d 1354 (9th Cir.1998). Coudert Brothers had previously represented one of Kodak's affiliates over an extended period, before representing the plaintiff in the antitrust case. See id., 136 F.3d at 1355. When Kodak learned of the conflict of interest, it successfully moved to have Coudert Brothers disqualified from the case. See id., 136 F.3d at 1355-56. Later, the plaintiff—which prevailed in the antitrust case—sought to enforce an agreement between it and Kodak in which Kodak had agreed to pay the plaintiff $400,000 in connection with attorneys' fees invoiced by Coudert Brothers to the plaintiff. See id., 136 F.3d at 1356. The U.S. Court of Appeals for the Ninth Circuit refused to enforce the agreement. See generally id., 136 F.3d at 1357-59.
Ruling that Kodak—"the victim of an ethical violation by plaintiff's counsel Coudert"—was not required to pay the plaintiff the $400,000 fee for Coudert Brothers' conflicted services, the Ninth Circuit reasoned:
Image Tech. Serv., 136 F.3d at 1358-59; see also id., 136 F.3d at 1358 (explaining that "[s]imultaneous representation of clients with conflicting interests (and without written informed consent) is an automatic ethics violation in California," and that "[a]n attorney cannot recover fees for such conflicting representation") (citations omitted); U.S. ex rel. Virani v. Jerry M. Lewis Truck Parts & Equip., Inc., 89 F.3d 574, 579-80 (9th Cir.1996) (noting that "California courts have often held that when the ethical violation in question is a conflict of interest between the attorney and the client (or between the attorney and a former client), the appropriate fee for the attorney is zero," at least where "the violation is one that pervades the whole relationship") (citing cases involving conflicts of interest).
Image Technical Service may not be precisely "on all fours" with the instant case as Pressman-Gutman claims it is. See Pressman-Gutman Response to Cross-Motion at 19 (discussing Image Tech. Serv., 136 F.3d 1354). But it is pretty close, and it is entirely consistent with other case law on point. Given the circumstances here, and in the absence of any real proffer of facts or law by AMICO to counter Pressman-Gutman's arguments, it would be inappropriate to enforce the attorneys' fees provision of the indemnity agreement's collateral security clause against Pressman-Gutman with respect to services rendered by GDLSK. Pressman-Gutman thus is not required to reimburse AMICO for attorneys' fees and expenses invoiced by GDLSK.
Just as Pressman-Gutman "should not be forced to finance GDLSK's breach of its duty of loyalty to Pressman-Gutman," so too Pressman-Gutman asserts that it "should not be forced to finance GDLSK's continued conflicted involvement in this matter through conferences and correspondence between GDLSK attorneys and the Law Offices of Michael P. O'Connor" that are reflected in the invoices of the latter. See Pressman-Gutman Response to Cross-Motion at 19-20; see also id. at 2, 18-20. AMICO again makes no substantive effort to counter Pressman-Gutman's argument. See generally AMICO Cross-Motion; O'Connor Reply Aff. at ¶¶ 10-11. Given the circumstances here, and in the absence of any response from AMICO, it would be inappropriate to enforce the attorneys' fees provision of the indemnity agreement's collateral security clause against Pressman-Gutman with respect to services rendered by the Law Offices of Michael P. O'Connor involving consultation, conferences, or correspondence with GDLSK. Pressman-Gutman therefore is not required to reimburse AMICO for attorneys' fees and expenses for services rendered by the Law Offices of Michael P. O'Connor to the extent that those services relate to consultation, conferences, or correspondence with GDLSK concerning this matter.
Pressman-Gutman further argues that it should not be required to reimburse AMICO for attorneys' fees and expenses charged by the Law Firm of Michael P. O'Connor for "work ... relat[ing] to cases other than the instant [liquidated damages] case," including work "relating to separate ... lawsuits in which Pressman-Gutman is the plaintiff, challenging the denial of its protests against the exclusion
Pressman-Gutman's final objection is to "the $200.00 in costs invoiced by the Law Offices of Michael P. O'Connor which were allegedly incurred on April 26, 2006 and are described on the invoice as `Attorney Service Bureau Expedited Filing of Answer and Counterclaim with Court of International Trade.'" See Pressman-Gutman Response to Cross-Motion at 20. As Pressman-Gutman notes, the court has an electronic filing system, obviating the need to incur any fee for such "expedited filing." See id. Pressman-Gutman contends that the expense is therefore "unreasonable." See id. AMICO is, once again, silent on the matter. See generally AMICO Cross-Motion; O'Connor Reply Aff. at ¶¶ 10-11. Under the circumstances, and in the absence of any explanation of the expedited filing fee by AMICO, it would be inappropriate to enforce the attorneys' fees provision of the indemnity agreement's collateral security clause against Pressman-Gutman with respect to that fee. Pressman-Gutman therefore is not required to reimburse AMICO for the $200 expedited filing fee invoiced by the Law Offices of Michael P. O'Connor.
In sum, AMICO's Cross Motion for Attorney's Fees in the amount of $13,246.80 is granted in part and denied in part. Pressman-Gutman is not required to reimburse AMICO for attorneys' fees and expenses invoiced by GDLSK in the amount of $5,181.30. Nor is Pressman-Gutman required to reimburse AMICO for the $2,383.44 in attorneys' fees and expenses invoiced by the Law Offices of Michael P. O'Connor that are set forth above—i.e., fees and expenses for services relating to consultation, conferences, or correspondence with GDLSK concerning this matter; fees and expenses incurred in connection with actions other than the case at bar; and the $200 fee incurred for expedited filing of AMICO Answer and Counterclaim [Cross-Claim]. As to the remaining $5,682.06 in attorneys' fees and expenses invoiced by the Law Offices of Michael P. O'Connor, AMICO's Cross-Motion is granted. Pressman-Gutman shall reimburse AMICO in that amount.
For all the reasons set forth above, Pressman-Gutman's Motion to Dismiss and AMICO's Cross-Motion to Dismiss must be granted, and the Government's Complaint must be dismissed. AMICO's Cross Motion for Collateral Security and Attorney's Fees is denied as to collateral security (on grounds of mootness), and is granted in part and denied in part as to attorneys' fees and expenses. Pressman-Gutman shall reimburse AMICO for $5,682.06 in attorneys' fees and expenses.
Judgment will enter accordingly.
For example, the Government asserts that "[w]ithin 30 days after merchandise imported by Pressman was conditionally released from Customs' custody, Customs notified Pressman that the merchandise was conditionally released and that Pressman should submit samples of the merchandise to Customs." See Pl.'s Opposition to Motions to Dismiss at 2 (emphases added); see also id. at 5 (stating that "[w]ithin 30 days after conditional release of the imported merchandise, Customs requested Pressman to submit samples of the merchandise, and informed Pressman that the merchandise is conditionally released") (emphases added). The Government thus fails to clearly distinguish between the initial "release" of merchandise and the "conditional release" of merchandise. See, e.g., 19 C.F.R. § 113.62(d) (referring to the initial "release[]" of merchandise, as well as to "the conditional release period").
Similarly, the Government's brief states that one of the two issues presented by the case at bar is "[w]hether Customs, acting within 30 days after the conditional release period commenced, could extend that period. . ." See Pl.'s Opposition to Motions to Dismiss at 2 (emphasis added). But nowhere in its brief does the Government argue that the "conditional release period" commenced at some time other than when Customs requested the samples from Pressman-Gutman. Further, the Government's argument in this case focuses not on when the samples were requested, but, rather, on when they were received.
Specifically, the Government predicates its claim in this matter on the fact that the CF 28s ostensibly "extending" the conditional release periods were issued within 30 days after the requested samples were received by Customs. See, e.g., Pl.'s Opposition to Motions to Dismiss at 10 (asserting that "within 30 days after the samples were received by Customs, Pressman was notified that the conditional release period was extended by 90 days," and arguing that "[n]one of the authorities relied on by Pressman addressed a situation in which Customs, within 30 days after receipt of samples of merchandise, notified the importer that the conditional release period was extended"); see also, e.g., id. at 9 (emphasizing that "[w]ithin 30 days after Pressman submitted the samples, Customs notified Pressman . . . that the conditional release period was extended"); id. at 5 (emphasizing that CF 28s purporting to extend the conditional release periods were issued "within 30 days after . . . receipt of the samples of merchandise"); id. (stating that "[w]ithin 30 days after Pressman submitted the samples, Customs notified Pressman . . . that the conditional release period was extended for 90 days").
To be sure, as explained elsewhere herein, the phrase "conditional release period" (as used in 19 C.F.R. § 113.62(d)) is a term of art; and its proper, technical definition may seem counterintuitive (even misleading) to anyone who is not a seasoned practitioner of customs law. As Customs Headquarters has defined the phrase, "conditional release period" notably does not refer to the 30-day period following Customs' initial release of merchandise, when Customs may demand redelivery of merchandise; nor does "conditional release period" refer to the 30-day period following Customs' receipt of a requested sample, when Customs also may demand redelivery. Instead, as detailed above, Customs Headquarters interprets the phrase "conditional release period" as the term is used in § 113.62(d) to refer solely to the perior between Customs' request for a sample of merchandise and Customs' receipt of the requested sample. Nevertheless, throughout its brief, the Government repeatedly misuses the phrase "conditional release period." See, e.g., Pl.'s Opposition to Motions to Dismiss at 13 (in discussion of HQ 119541, asserting that the "conditional release period" expired "30 days after receipt of the samples").
In any event, sloppy verbiage aside, the Government here does not actually dispute that, in a case such as this, the conditional release period begins when Customs requests a sample from the importer. More to the point, as discussed above, although the Government at least implicitly disputes that the conditional release period ends when Customs receives the requested samples, the Government has cited no authority to support that position. Indeed, the Government cannot do so.
It is thus misleading for the Government to speak of "extending" the conditional release period in this case. See, e.g., Pl.'s Opposition to Motions to Dismiss at 2 (referring to "the extended conditional release period"); id. at 5 (asserting that "Customs extended the conditional release period"); id. at 10 (arguing that "nothing. prevents Customs from extending the conditional release period"); id. at 11 (stating that "Customs extended the conditional release period"); id. at 15 (stating that "the conditional release period was extended"); id. at 16 (referring to the "extension of the conditional release period"); id. at 17 (referring to "[t]he extension of the conditional release period"); id. at 20 (referring to the "extension of the conditional release periods"). The conditional release periods for the first and second entries ended, respectively, on or before October 15, 1999 and on or before October 25, 1999, when Customs received the requested samples. See section I.A, supra. The CF 28s purporting to "extend" the conditional release periods for the two entries—which are dated October 15, 1999 and October 25, 1999, respectively, and which acknowledge Customs' receipt of the samples—thus were not issued until after the conditional release periods had expired. Id. And, metaphysically-speaking, one cannot "extend" that which has already expired.
In short, as Pressman-Gutman puts it, by the time the October 1999 CF 28s were issued, "there were no existing conditional release periods to `extend.'" See Pressman Gutman Reply at 12. Therefore, even assuming, arguendo, that the Customs staffer in this case (and other individual Customs staffers at ports all across the country) had the power to "extend" conditional release periods, no such "extension" would have been possible in the instant case, because the conditional release periods here had already ended before the Customs staffer took action.
The facts of this case and the history of Customs Headquarters' interpretation of the relevant regulations suggest the possibility that the agency's past interpretation was not only not intended to be "deliberately changed" here; it was not even being "casually ignored." See Bush-Quayle '92 Primary Committee, 104 F.3d at 453. Rather, it seems at least possible that the Customs staffer here was simply ignorant of Customs Headquarters' long-held and oft-reiterated interpretation. See Harrington v. Chao, 280 F.3d 50, 59-60 (1st Cir.2002) (observing that, where the agency's "Statement of Reasons fail[ed] to explain whether [the agency] [was] departing from [its] prior course and, if so, the reasons for the change," the record did not even permit court to determine whether agency actually intended to do an "about face" on its interpretation of regulation; noting that "it is not clear on this record that the [agency] is in fact repudiating [its] prior interpretations here"); cf. AFSCME v. AIG, 462 F.3d at 129 (criticizing agency's amicus brief for "fail[ing] to so much as acknowledge a changed position, let alone offer a reasoned analysis of the change"). However, while ignorance might (in some measure) excuse the actions of an individual Customs staffer working out in the "field," it does nothing to explain the agency's subsequent determinations, much less the decisions of counsel to press an untenable position in litigation.
In its landmark ruling in Atchison, Topeka & Santa Fe Railway Co., the U.S. Supreme Court emphasized the importance of a clear and well-reasoned justification for any deviation from prior agency practice:
Atchison, Topeka & Santa Fe Railway Co. v. Wichita Board of Trade, 412 U.S. 800, 807-08, 93 S.Ct. 2367, 37 L.Ed.2d 350 (1973) (emphases added).
Even if Customs had undertaken to articulate a proper, well-reasoned basis for reversing its longstanding regulatory interpretation here (which it plainly did not), Pressman-Gutman's contractual obligations to its customers might well have precluded Customs from giving effect to such a changed interpretation in this case. See generally Pressman-Gutman Motion to Dismiss at 21 (emphasizing that "[w]here, as here, Customs Headquarters clearly, publicly, and repeatedly communicated that Customs must issue a redelivery notice within thirty-days of receiving a sample, regulated parties are not on notice that the government can request redelivery over three months after it receives samples"). It is black-letter law that considerations of "administrative equity" prohibit agencies from "`impos[ing] undue hardship by suddenly changing direction, to the detriment of those who have relied on past policy.'" Acadian Gas, 878 F.2d at 870 (quoting Cities of Anaheim, Riverside, Banning, Colton and Azusa v. Federal Energy Regulatory Comm'n, 723 F.2d 656, 659 (9th Cir.1984)); see also, e.g., United States v. Midwest Oil Co., 236 U.S. 459, 472-73, 35 S.Ct. 309, 59 L.Ed. 673 (1915) (noting that "government is a practical affair, intended for practical men," and recognizing that "[b]oth officers, law-makers and citizens naturally adjust themselves to any long-continued action of the Executive [Branch]"); Nat'l Corn Growers Ass'n v. Baker, 840 F.2d 1547, 1555 (Fed.Cir.1988) (stating that "[t]he law is the law at the time of its existence, . . . and `practical men' have a right to rely on it at the time they perpetrate their actions"); Shikoku Chems. Corp. v. United States, 16 CIT 382, 388 & n. 8, 795 F.Supp. 417, 421-22 & n. 8 (1992) (and cases cited there) (same); cf. Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 742, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996) (explaining—in case involving alleged change in agency interpretation of statute—that "the mere fact that an agency interpretation contradicts a prior agency position is not fatal"; however, "[s]udden and unexplained change" or "change that does not take account of legitimate reliance on prior interpretation . . . may be `arbitrary, capricious, [or] an abuse of discretion'").
If the phrase "other appropriate action" was intended to be the "relief valve" that the Government contends, it is reasonable to expect that other Customs rulings would have addressed it, and that other Customs personnel would have invoked it from time to time, as necessary, over the course of the past 20 years or so. It is telling that they have not done so.
However, a recent decision by the U.S. District Court for the Southern District of New York states that—although "courts look to the American Bar Association Model Rules of Professional Conduct and to state disciplinary rules including, in this forum, the New York Rules of Professional Conduct"—"these rules provide guidance only and are not conclusive," because the disqualification of an attorney for conflict of interest "is a function of the court's inherent supervisory power." See Revise Clothing, 687 F.Supp.2d at 388; see also In re American Airlines, 972 F.2d at 609-10 (in case involving conflict of interest, noting that state bar's Code of Professional Responsibility is "not the `sole authority'"; explaining that, in considering disqualification of counsel, court considers "the ethical rules announced by the national profession in light of the public interest and the litigants' rights"; emphasizing that "disqualification cases are governed by state and national ethical standards") (citations omitted).
In any event, there has been no suggestion that the analysis here turns on the application of any specific set of rules or body of law, or that the outcome of the analysis would differ under any other set of rules or the law of any other jurisdiction.
O'Connor Reply Aff. at § 10. Parties are not permitted to make bald, sweeping assertions such as these and then expect the court to make their case for them.
