US' New Theory of CIT Jurisdiction in IEEPA Suit 'Convoluted' and 'Wrong,' Importers Say

Last month, the D.C. federal district court held that IEEPA categorically doesn't provide for tariffs, granting a preliminary injunction against the collection of the duties from the two importers (see 2505290037). In the ruling, the court said it, and not the Court of International Trade, had jurisdiction to hear the case, since the trade court only has exclusive jurisdiction to hear cases arising out of U.S. laws providing for tariffs under Section 1581(i), and IEEPA doesn't provide for tariffs.

In its appeal to the D.C. Circuit, the U.S. argued that the case actually "arises out of" the Harmonized Tariff Schedule and President Donald Trump's executive orders modifying the HTS (see 2506300061). The brief said the HTS statute says presidential actions modifying the HTS qualify as U.S. laws, thus making jurisdiction proper at CIT.

Learning Resources and Hand2Mind argued in response that this case doesn't arise out of the HTS or the EOs modifying the HTS. As the D.C. district court held, the phrase "arises out of" refers to the "substantive law" giving rise to the plaintiff's claims. The trade court itself agrees, since it's held in two cases cited by the importers that it's "necessary that the gravamen of the complaint be determined" in order to determine whether a cause of action "might be embraced" by Section 1581(i).

The importers added that this inquiry "mimics the analysis performed under" 28 U.S.C. 1331, "from which section 1581 'was apparently drawn.'" To find whether a case arises under laws of the U.S. under Section 1331, courts ask whether "federal law creates the cause of action asserted," the brief said. A shorthand for the test is to ask which statutes require "interpretation and application."

Here, only one "substantive law" requires "interpretation and application," and that law is IEEPA, the importers argued.

While the government argued that it's "nonsensical" for the jurisdiction and merits questions to overlap, Learning Resources and Hand2Mind claimed that this is "in fact quite 'common.'" As the Supreme Court itself has said, "courts may sometimes need to 'decide some, or all, of the merits issues' to 'answer the jurisdictional question.'"

In fact, the government's "inapt authority," the 2022 SCOTUS case Garland v. Aleman Gonzalez, actually "teaches the basic lesson that a statute's plain language governs its meaning," the importers argued. In that decision, the court said it's "of course true" that it's "common for jurisdictional inquiries and the merits to overlap" and that it was "unusual" to have "complete overlap -- not that such an overlap should be avoided at all costs."

Learning Resources and Hand2Mind argued that their claims don't arise out of the HTS or modifications made to the HTS, saying that any modification to the HTS "is only the incidental, downstream effect of the President’s (unlawful) assumption of tariffing authority under IEEPA." The government even understood this when they began litigating in the district court, only arguing in its initial motion to transfer that the D.C. court should defer to CIT on jurisdiction or hold that IEEPA provides for tariffs.

The U.S. "never quoted the language on which" it now relies, and it wasn't until its reply brief that it even suggested the HTS "might play a role, and even then they never argued this action" arose out of the HTS or mentioned the EOs in conjunction with the HTS, the brief said.

In addition, the government assumes that the modified HTS and related EOs can be considered laws of the U.S. for purposes of Section 1581(i), though the statute establishing the HTS says that modifications to it made by the president "under authority of law" shall be considered "statutory provisions of law for all purposes." But EOs issued without authority are generally held not to be laws of the U.S., the brief said. The EOs thus can't be laws of the U.S. unless IEEPA provides the proper authority for tariffs, the brief said.

The importers reiterated their substantive claim that IEEPA, which only lets the president "regulate ... importation," doesn't provide for tariffs. The companies stressed their argument that if "regulate" conveys the power to tax, it would lead to an unconstitutional result, since "regulate" also applies to "exportation" in the statute, which is explicitly unconstitutional. The government says Congress "must have simply expected courts to construe 'regulate ... importation or exportation' to allow taxation on the former but not the latter."

"But the far more straightforward explanation is that Congress did not think 'regulate' granted taxing power at all," the brief said. "Indeed, this Court must adopt that interpretation to avoid an obvious constitutional defect."

The government's read of IEEPA would also let the president impose taxes on a "vast array of other property," since the statute also lets the president "regulate" any "acquisition, holding, withholding, use, transfer, withdrawal, [or] transportation" of property in which a foreign national has an interest. There's "zero indication that Congress intended to delegate such a sweeping taxing power to the President when it enacted IEEPA," the brief said.

Learning Resources and Hand2Mind also expanded their claim that IEEPA can't extend to imports, since the law only lets the president regulate property in which a foreign party has an interest. The government doesn't even try to explain what interest a foreign national maintains in property after a U.S. importer has taken "full control and ownership of the property," the brief said. "It is nonsensical to suggest that a completely divested foreign interest in American property persists in perpetuity," the importers said, adding that, on that theory, the president could use IEEPA "to unilaterally tax any American’s foreign-assembled car -- years after arrival in the United States -- just because a foreign national once held legal or beneficial interest in it."