Vol. 16, No. 3
Harbor Maintenance Fee Unconstitutional...................4
It’s a Brave New (Legal) World.....................................................6
Virginia State Bar Annual Meeting
uInternational Arbitration and Dispute Resolution u
Featuring James Woolsey, Former Director of the CIA
Friday, June 19, 1998
Cavalier Oceanfront Hotel, Virginia Beach
1.5 Hours of CLE Credit
Virginia State Bar
International Practice Section
Patrick O. Gottschalk.................................Chair
John B. Sternlicht.............................Chair-Elect
Robert G. McElroy..............................Secretary
Board of Governors
Charles V. McPhillips......Immediate Past Chair
William J. Benos................................Past Chair
Eliot Norman......................................Past Chair
Elliott P. Park..........................Newsletter Editor
Charles W. Best, III
George J.A. Clemo
Thomas J. Fadoul, Jr.
George L. Hiller
John M. Huddle
Michael P. Kelley
Michael J. Lockerby
Robert R. Merhige, III
Jeffrey D. Nuechterlein
Edward R. Slaughter, Jr.
Charles L. Williams, Jr.
Ex-Officio Board Members
Clyde E. Ellis, Jr.
Thomas B. McVey
Kevin D. Pomfret
Stuart S. Malawer
Professor Raj Bhala
Douglas M. Nabhan
John M. Weisner
Keith C. Cuthrell, Jr.
Henry P. Bouffard
Diana L. Balch...............................VSB Liaison
by Patrick O. Gottschalk, Chair
Cantor, Arkema & Edmonds
As this will be my last Chair's column before I pass the gavel to Chair-Elect John Sternlicht, I would like to highlight some upcoming events and reflect on some accomplishments of this year.
With respect to upcoming events, the Section will be sponsoring a 1.5 hour CLE seminar at the annual meeting of the Virginia State Bar in Virginia Beach, Virginia in June. On Friday, June 19, 1998 at 10:45 a.m. at the Cavalier Oceanfront, James Woolsey, former Director of the Central Intelligence Agency, will speak on "International Arbitration and Dispute Resolution". Mr. Woolsey is currently a member of the law firm of Shea & Gardner in Washington, DC and concentrates in the area of negotiating and resolving international disputes. Thanks again to Kevin Pomfret for his help in organizing this effort.
Regarding some of the accomplishments of this year, I would note that the Section recently sponsored a luncheon featuring Virginia Secretary of Commerce and Trade, Barry DuVal, at The Jefferson Hotel on March 17, 1998. Secretary DuVal spoke on the Gilmore Administration's plans for promoting international trade, investment, and tourism in the Commonwealth. The event was a great success, with approximately 65 people in attendance, including former Governor Linwood Holton, Virginia Chamber of Commerce President Hugh Keogh, and Executive Director of the Virginia Economic Development Partnership, Wayne Sterling. I
would like to extend a special thanks to Doug Nabhan of Williams Mullen Christian & Dobbins and John Sternlicht of the Virginia Economic Development Partnership for their help in putting this together.
By the time this Newsletter is published, the Section's annual CLE Seminar will have been held in Williamsburg. Chuck Best and his committee have put a tremendous amount of time and effort into this year's offering ("Strategic Issues In Cross-Border Transactions"), and I am sure it will be a great success. Thanks again to Chuck and the members of his committee for their hard work.
This year, we have also focused on increasing our membership ranks and have formed a Membership Committee to guide this effort. So far, the Committee has developed a list of action items and strategies and is getting underway with its plan. One recommendation to the Committee that was recently carried out was the mailing of a membership application with the brochures describing the May 8, 1998 CLE in Williamsburg. Hopefully, these efforts will realize substantive gains in our membership ranks.
Finally, since this will be my last newsletter, some additional thanks are in order. First, I would like to extend my sincere thanks to John Sternlicht, Chair-Elect, and Bob McElroy, Secretary, for their enthusiastic support and assistance. I also want to thank all of the Past Chairs (especially Chuck McPhillips, Bill Benos, and Eliot Norman) for their advice and support.
I think this has been a great year for the Section, and it has been an honor and privilege for me to serve as your Chair. I look forward to helping John Sternlicht in any way I can during his tenure as Chair next year.
Copyright © 1998, International Practice Section, Virginia State Bar.
The information published in this newsletter is intended to inform members of the International Practice Section of the Section’s news and events, and to provide them with general information about current issues in international law and practice. It is not to be used or relied upon by anyone in connection with a specific legal problem, nor is it to be used by nonmembers as a substitute for consultation with an attorney.
Comments, expressions of opinion, or statements made in this newsletter are those of the editor and/or the contributors and are not necessarily those of the Virginia State Bar or the International Practice Section.
Supreme Court Declares Harbor Maintenance Fee Unconstitutional
Daniel R. Morris
Virginia Beach, Virginia
As the result of a US Supreme Court (Supreme Court) decision, the federal government is obligated to refund over $1 billion of taxes collected under an unconstitutional federal law. In a decision amazing for its speed and its unanimity, the Supreme Court declared the harbor maintenance fee (HMF) an unconstitutional tax on exports by a vote of 9 - 0. As a result, any waterborne exporter who files a claim with the Court of International Trade (CIT) can expect refunds-- maybe!
On March 31, 1998, the Supreme Court decided U.S. Shoe Corp. v. United States No. 97-372. In that case, the Supreme Court struck down the federal law that assessed a harbor maintenance tax on exports. The Supreme Court held the law violated the constitutional provision prohibiting taxes or duties on exports.
In the mid-1980's, Congress passed the law establishing an HMF to raise money for dredging and general port maintenance. Prior port user fees, like voyage assessments or per-ton charges, created dissension among bulk and containerized shippers, high and low-volume ports, and ship owners versus shippers. In a much debated compromise, Congress devised a 0.04% ad valorem tax called the Harbor Maintenance Tax (HMT) as part of the Water Resources Development Act of 1986. The HMT became effective in 1987. The HMT was applied against all exports, imports, domestic shipments on inland waterways and the St. Lawrence Seaway, and levied on cruise ship tickets as well.
When enacted, the HMT appeared to be a patent violation of the constitutional provision prohibiting taxes on exports, i.e. Article I, Section 9, Clause 5. Although aware of the constitutional prohibition against export taxes, Congress believed broad constitutional interpretations and expanded tax powers provided the authority to enact the tax.
Initially, the HMT remained somewhat innocuous. The 0.04% rate was a relatively small price to pay for the obvious improvements to the harbors. In 1990, however, Congress more than tripled the tax to 0.125%; revenue skyrocketed. By 1993, the HMT had generated a $450 million surplus, which was maintained in the Harbor Maintenance Trust Fund.
As the Harbor Maintenance Trust Fund surplus grew, taxpayers and port users started filing suit in the CIT challenging the tax. Such is the case here. In 1994, the US Shoe Company sued Customs in that court for refund of its $8,800 in HMT payments. Because that court has exclusive national jurisdiction over a wide range of customs and trade matters, its decisions are followed closely by businesses around the world. A decision involving a relatively small transaction, such as the one here, by an importer or exporter could have a significant impact on thousands of large transactions by other importers/exporters.
By 1995, facing more than 700 claims, the CIT selected U.S. Shoe Corp. v. United States as the test case under the court’s test case/suspension procedure. That procedure, which is unique to the CIT, allows the potential litigants to file claims with the court and, suspend litigation while awaiting the court’s decision in the designated "test case" involving a common issue of law or fact.
In U.S. Shoe, the CIT unanimously found the HMT unconstitutional, a decision later upheld by a 4 - 1 margin by the US Court of Appeals for the Federal Circuit. The US sought and obtained a writ of certiorari from the Supreme Court. On March 31, 1998, a mere 27 days after oral arguments, the Supreme Court rendered its unanimous decision affirming the lower court’s decision, declaring the law, and accompanying tax, unconstitutional.
As a result, nearly $1 billion in back taxes must now be refunded for HMT paid on waterborne exports. The CIT recently issued an order directing the government to devise procedures to process the claims.
The decision in U.S. Shoe leaves unresolved the issue of whether all the taxes collected since the law’s inception must be refunded. Although two CIT judges indicated refunds of the tax would be limited by a two-year statute of limitations, a third judge argued that all taxes collected since the HMT’s inception must be refunded. A motion has already been filed to invoke this void ab initio theory of the third judge.
Regardless of the decision on the statute of limitations issue, exporters who act quickly can collect taxes paid before the two-year statute of limitations period. A failed attempt to certify a class action consisting of all exporters who paid the tax tolled the statute of limitations during its litigation . Therefore, exporters who file a complaint before May 7, 1998, will most likely be able to recover taxes paid since the third quarter of 1994.
Finally, the CIT indicated it will award interest on all taxes from the date of payment, compounded daily. Because the HMT on exports has been struck down, its use with respect to imports may be vulnerable since Congress presumably did not want the tax to fall disproportionately on imports alone. One trade court judge rejected the point in a different context, but US trading partners and the European Union have filed complaints against the HMT in the World Trade Organization contending the HMT is discriminatory and violates at least six world trade regulations.
What Does This Mean to Exporters?
The decision in U.S. Shoe makes it clear that HMT already paid can only be recovered through an action in the CIT. Based on the current decisions, recovery can be made for payments from the third quarter of 1994 to the present-- if an exporter files before May 7, 1998. However, claims for the entire HMT paid should be filed under the void ab initio theory.
Unfortunately, the US Customs Service has stated it will disregard years of protests filed with the quarterly HMT payments with the CIT. As a result, those exporters relying on US Customs’ administrative protests must immediately file lawsuits in the CIT to recover their refund and interest.
Daniel R. Morris, an attorney with his own firm of Daniel R. Morris, P.C., welcomes questions on this topic and may be reached in Virginia Beach at 757.340.7001.
CONNECTING VIRGINIA LAWYERS WITH THE WORLD:
To request the International Practice Section’s Directory of Foreign Attorneys, or to propose a foreign attorney for inclusion in the International Practice Section’s next Directory of Foreign Attorneys, contact:
Charles V. McPhillips
Kaufman & Canoles
One Commercial Place
P.O. Box 3037
Norfolk, VA 23514
It’s a Brave New (Legal) World
The University of Richmond Law School’s International Business Seminar Trains Students for the 21st Century
Editors Note: This article is published with the permission of the Education of Lawyers Section of the Virginia State Bar and originally appeared in Education & Practice, the newsletter of that section.
William J. Benos
George L. Hiller
The preparation of students to work in the global marketplace has been a key element of graduate business programs in Virginia for a number of years, reflecting the fact that international business has become a mainstay of the state’s economy. More than 2500 Virginia firms do business internationally, including an increasing number of smaller and medium-size firms. The international boom has been experienced not only by manufacturers, but also by a growing number of engineering, software development, and even legal service providers.
Arguably, international legal education needs to "catch up" to graduate business education and teach law students the necessary legal and business development skills required to successfully counsel companies seeking overseas expansion. Recognizing this need, Richmond lawyers William J. Benos, a partner with the international practice group at Williams Mullen Christian & Dobbins, and George L. Hiller, an International Marketing Manager with the Virginia Economic Development Partnership, worked with the University of Richmond School of Law to establish an International Business Practice Seminar in 1995. From the beginning, the seminar enjoyed the support of Drs. Tom Cosse and Frank Franzak from the business schools at the University of Richmond and Virginia Commonwealth University respectively.
The goal of the International Business Practice Seminar, taught by Benos and Hiller, is to give law students "hands on" experience in dealing with typical international legal problems and challenges facing Virginia businesses. Law students identify legal issues, research appropriate and applicable laws, develop legal strategies, and present their findings to a client. The seminar takes an interdisciplinary approach, teaming law students with MBA students from the University of Richmond and Virginia Commonwealth University who are participants in the Virginia Economic Development Partnership’s International Market Planning (IMP) Program.1 Together, the law and MBA students work with area companies to develop a comprehensive, written international business plan and legal report to structure the export of the client’s products or services overseas. At the end of the semester-long program, the team presents and defends its plan to the client’s senior management, state economic development officials, and their professors. The program is the only JD/MBA program of its kind in Virginia.
The seminar emphasizes the lawyer’s role as a counselor and planner who identifies legal and business issues that clients need to address to develop a successful international business plan. Benos notes, "Clients do not typically think in terms of a bright line between legal and business issues. They are simply looking for solutions to problems. We try to instill in our students this kind of interdisciplinary teamwork approach to problem solving."
This year, students are working with a Fortune 100 firm, an entrepreneurial start-up, and the Virginia subsidiary of a European firm. "This has provided a wonderful laboratory," says Benos, "in which to discuss a variety of legal issues at different levels." Hiller notes, "It is all ‘cutting edge’ and the clients and countries studied change yearly. Sometimes political, legal, or economic developments require the JD/MBA teams to change marketing strategies for a client in midstream. That is the real world of international business; flexibility is critical."
The seminar emphasizes sound legal scholarship and writing. The first class is spent in the law library reviewing print and on-line legal materials. The University’s business school librarian also meets with the law students to discuss resources in that school’s collection. The written presentation is a formidable challenge, as the law students are called upon to define and redefine legal issues that are important to the clients’ business ventures. Benos notes that "writing for a client is a big change for law students more accustomed to preparing blue books, internal memoranda, and appellate briefs." In addition, clients are informed that the law students cannot and do not give specific legal advice. Furthermore, students do not draft documents for clients, although a hypothetical drafting exercise is part of the course.
The joint oral presentation with the business students brings the whole package together for the students. "Many of our IMP corporate clients often think of lawyers only in a litigation context," Hiller says. "It is refreshing for them and the law students to see lawyers working as part of a client’s planning team, building a business, and creating new opportunities."
In addition to several lectures by Benos and Hiller, the seminar features guest speakers, many of whom serve with Benos and Hiller on the Board of Governors of the Virginia State Bar’s International Practice Section. The speakers lecture on international legal topics. They also discuss their practices and career opportunities for students.
Former students and clients agree that the International Business Practice Seminar is very worthwhile. Elliott P. Park, a Richmond lawyer and a student in the first seminar, states: "The course required me to become more resourceful and required investigation of both legal and nonlegal materials to satisfy the client’s goal of succeeding in the international market." Clients of the seminar also realize benefits. Joe Bartoletti’s company, GE Fanuc Automation in Charlottesville, has participated in the IMP program twice through the University of Richmond. Bartoletti notes that a Richmond JD/MBA team pointed out the need for a specialized registration in Colombia that was required to conduct business in that market. "We were unaware of this;" said Bartoletti, "however, we worked to get registered immediately following the study."
University of Richmond Law School Dean John Pagan, formerly head of the global law program at New York University, is committed to expanding the school’s international programs. "The International Business Practice Seminar is a key part of our effort to globalize the Law School’s curriculum," Pagan says. "Many of our graduates will represent clients with business interests around the world, so it is essential for them to understand how international transactions work. The International Business Practice Seminar provides excellent preparation for practicing law in a global economy."
1The IMP Program began in 1988 and involves eleven of the state’s graduate business schools. Through the program, teams of MBA students work with local companies to develop international business plans to assist the company in expanding its market abroad.
William J. Benos is a partner at the law firm of Williams Mullen Christian & Dobbins in Richmond. George L. Hiller is an International Marketing Manager at the Virginia Economic Development Partnership. Both are members of the Board of Governors of the International Practice Section of the Virginia State Bar.
Bar Year 1997-1998
Annual Meeting Board and Speakers Dinner
Board of Governors Meeting, IPS Annual Section Meeting, Summer CLE Program