CIT Holds Oral Argument on US 'Exhaustion' Defense in Ninestar's UFLPA Entity List Case

The session was split into two parts, with one open to the public. The open session centered on the claim that Ninestar failed to exhaust its administrative remedies by not contesting the listing decision before the Forced Labor Enforcement Task Force (FLETF).

Judge Gary Katzmann opened the oral argument by detailing the litigation's history, including his prior opinion in the matter, which found that Ninestar is likely to establish subject-matter jurisdiction in the case under Section 1581(i), the court's "residual" jurisdiction (see 2311300038).

The court acknowledged that while it rejected the government's motion to dismiss in its prior opinion, the U.S. still raised its exhaustion claims in its response to the injunction motion. In addition, Katzmann said the "court is very much interested in everything counsel has to say" on the matter, and that the issue of exhaustion in this context is "extremely significant."

In his opening remarks, Ninestar laywer Gordon Todd of Sidley said the case is an attempt to hold the U.S. government "to its own standards" and to ensure the government doesn't undercut its own authority. Briefly addressing the need to establish a preliminary injunction, Todd said Ninestar will suffer irreparable harm absent the injunction in the form of reputational damage and degradation to business relationships.

The company "has been tried in the court of public opinion" due to its addition to the UFLPA Entity List, Todd said, adding that a loss for the exporter on the PI motion means a lot more to Ninestar than it does to the government.

As for the question of whether Ninestar is likely to succeed on the merits of the case, a requirement of a PI, Todd asked the court to look at the case from an outside perspective, from which a party would see only the "government's manicured record" that is "simply not true."

The U.S. attempts to stitch together a record with an "absurdly low standard of proof" and "secret evidence," Todd argued. He likened FLETF's evidentiary standard to the standard for "stop and frisk" policy, adding that failing to clear the standard leads to a "death penalty" for Ninestar.

The government said its evidentiary standard is valid under the UFLPA statute and Section 307 of the Trade Act of 1930, which bars imports of goods made with forced labor. DOJ attorney Monica Perrette Triana compared UFLPA Entity List additions to other Section 307 proceedings and said Ninestar has no protected interest in a higher burden of proof beyond the low "reasonable cause" standard. The company has no right to enter its goods in the U.S., nor does it have standard constitutional due process rights, Triana said.

The DOJ attorney pointed to 28 U.S.C. 2637(d), which says the trade court requires exhaustion of administrative remedies in "any civil action not specified in this section" and "where appropriate." Both in her opening remarks and in response to questions from Katzmann, Triana said that requiring exhaustion of administrative remedies in this case achieves the twin aims of exhaustion, which are "judicial efficiency" and adjudicating the issue first before parties with expertise.

In response, Todd said that established law requires a judicial review without the need for exhaustion of administrative remedies unless the statute or regulation directs otherwise. Because there is no law or regulation requiring exhaustion here since the UFLPA does not require it, Ninestar is in the clear, the attorney said. He added that the U.S. Court of Appeals for the Federal Circuit has clearly established that when the Administrative Procedure Act applies, there's no exhaustion requirement.

After Katzmann said that it was appropriate for the court to require exhaustion, Todd disagreed, saying Congress knows how to mandate exhaustion when it wants to, as evidenced by 28 U.S.C. Section 2637(b), which requires protests and payment of duties before importers can challenge classification and rate of duty.

In addition, Todd argued that Ninestar's lack of access to the record eliminates the need for exhaustion. CIT and the Federal Circuit routinely have held that a lack of access to the record waives the exhaustion requirement, the attorney argued. If the case were to be remanded, it would "simply reward" the agency's behavior in barring access to evidence, he said. The lack of a time restraint on the proceeding also weighs in favor of removing the exhaustion requirement, Todd argued.

Katzmann asked why Ninestar didn't submit any evidence administratively. Todd conceded the company could have submitted information regarding its hiring practices and other business elements but said that would be futile. FLETF can list a company if it has a reasonable cause to conclude the company is using forced labor but then requires the company to prove beyond a reasonable doubt that it does not use forced labor. This disjointed standard, combined with the lack of access to the record, makes any attempt at delisting futile, Todd argued.

Triana jumped on Todd's concession that Ninestar could have submitted evidence administratively to claim that the company is in the best position to give the task force the information it needs to rebuke the listing decision. The exporter could have provided information to the experts, but it "simply didn't avail" itself of the opportunity, Triana said.

Todd argued during rebuttal that he would be "happy to go back" to the agency if the company gets full access to all the information in the case, but this is not what it was offered administratively. "There's no process at all for delisting," the attorney argued, characterizing the process as a "black hole." Triana argued that claim was baseless.

While the argument on the PI motion and bid to unseal and open the record were held confidentially, the court publicly released the questions it asked the litigants. Katzmann asked Ninestar why a comparison of the UFLPA's "reasonable cause" standard to CBP's "reason to believe" standard for Section 307 cases to be "inapposite." Regarding whether the exporter would suffer irreparable harm absent the injunction, the judge asked for its response to the U.S. argument that Ninestar has failed to show how losses of sales would affect its overall financial position.

The judge also asked the government a series of questions on FLETF's evidentiary standard, including on whether there is an "explicit directive" to use a burden of proof below a preponderance of the evidence that justifies the lower standard. Katzmann also asked for a response to Ninestar's argument that the APA and UFLPA require a public explanation beyond FLETF's Federal Register notice and to the exporter's claim that its economic loss can constitute irreparable harm since the damages are "unrecoverable."