The U.S. Court of International Trade (CIT) in U.S. Auto Parts Network, Inc. v. United States, Slip. Op. 18-38 (Apr. 6, 2018) recently granted a Temporary Restraining Order (TRO) and found in favor of an importer who alleged an impermissibly high single entry bond amount was imposed against the company.

U.S. Auto Parts Network (U.S. Auto), a company that imports and sells vehicle grilles and parts, was alleged to have imported 30 shipments of grills that contained counterfeit merchandise. U.S. Auto then received notice of the enhanced bond requirement in an email from U.S. Customs and Border Protection (CBP or Customs) on March 7, 2018. CBP indicated it was requiring single entry bonds valued at three times the value of the shipment. Because of the exceedingly high bond amount, on April 2, 2018, Auto Parts went to the CIT and sought a TRO preventing CBP from imposing such single entry bond requirements.

The CIT considered four factors when evaluating whether to grant a TRO to U.S. Auto. The company had to show the court that:

  1. It would suffer irreparable harm absent the restraining order.
  2. It was likely to succeed on the merits of the action.
  3. The balance of hardships favored the imposition of the temporary restraining order.
  4. It was in the public interest.

As to the first requirement, U.S. Auto indicated to the court it was not able to find a surety to post a bond in the amount because the potential risk was approximately $5 million per week. Irreparable harm includes “a viable threat of serious harm which cannot be undone.” U.S. Auto claimed without the restraining order it could not import and its business would effectively wind down. The Government characterized this as speculative harm; however, the Court found it to be sufficient to show irreparable harm.

The court next weighed the third requirement regarding the balance of hardships. The CIT weighed the closing of U.S. Auto’s business against CBP’s expense in resources. CBP alleged that it had conducted these inspections for months requiring “substantial diversion of resources” and “more than 1,100 man hours.” Still, the Court found that a company that is facing the closing of its business, loss of reputation, loss of customers, and other potentially permanent consequences due to the enhanced bond requirements had the balance of hardships tipped in its favor.

When evaluating the likelihood of success on the merits, the court examined U.S. Auto’s four claims against the Government in its Complaint. The first two claims alleged that Customs’ imposition of the higher bond requirement violated various provisions of the Administrative Procedure Act (APA). U.S. Auto’s third claim contended that the new bond requirement constitutes a punitive action and was unconstitutional under the Eighth Amendment’s Excessive Fines Clause. Plaintiff’s fourth claim asserted 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.

Under the APA, a final agency action will be overturned if the action is arbitrary, capricious, an abuse of discretion, or not in accordance with law. According to the Court, and a fact that was confirmed by Customs, ninety-nine percent (99 percent) of U.S. Auto’s imports were not suspected of being counterfeit. Slip. In other words, U.S. Auto was being put out of business as a consequence of 1 percent of its imports. That, according to the CIT was contrary to Customs’ mandate to set bond amounts to ensure compliance. This was sufficient to show a likelihood of success on the merits of the APA claims.

U.S. Auto’s third claim was Customs’ process did not permit the importer an opportunity to challenge the bond amount. If true, this would be a violation of the Fifth Amendment requirement that no person is to be deprived of life, liberty, or property without due process of law. Due process is notice and a meaningful opportunity to be heard. The CIT did not find for the plaintiff because of the longstanding position that there is no “right” to import products into the United States.

Turning to the public interest, U.S. Auto contended allowing it to continue to operate while the case is being decided on the merits was in the public interest. Specifically, it prevented the likely loss of over 350 jobs and provides the public with a source of cheaper replacement parts. The Government contends that the public is best served through the enforcement of the intellectual property laws and by allowing CBP to better allocate resources. The Court found the public interest rose above enforcement of the trade laws.

Because only one of the four factors weighed in favor of the Government, the Court granted the TRO. Under the terms of the TRO, CBP may continue to require a single entry bond at three times the value of the portion of the shipment believed to be counterfeit merchandise. In other words, CBP may impose the enhanced bond requirement on the 1 percent, not the 99 percent of U.S. Auto’s imports. The TRO expired on April 20, 2018, so there is likely to be further litigation in this matter.