[00:00:04] Speaker 05:
The first case is USV, American Home Assurance.

[00:00:10] Speaker 05:
Mr. Kenny, are you prepared to proceed?

[00:00:13] Speaker 05:
Yes, Your Honor.

[00:00:13] Speaker 05:
Nice to see you again.

[00:00:14] Speaker 06:
Nice to see you, Your Honor.

[00:00:17] Speaker 06:
Good morning, and may it please the court, Edward Kenny on behalf of the government.

[00:00:22] Speaker 06:
This court should reverse the portion of the pending below where the trial court denied the government equitable interest in addition to 580 interest.

[00:00:29] Speaker 06:
The lower court in denying equitable interest here abuses discretion

[00:00:34] Speaker 05:
an error does a matter of law when it concluded.

[00:00:38] Speaker 05:
Mr. Kennedy, you make an argument that prejudgment interest under 580 is punitive in nature, such that it cannot be compensatory designed to make the government halt.

[00:00:50] Speaker 05:
What's your proof for the statute's punitive intent?

[00:00:54] Speaker 06:
Yes, Your Honor, that is our position.

[00:00:56] Speaker 06:
I know.

[00:00:58] Speaker 06:
It's the way 580 is the plain language of 580.

[00:01:03] Speaker 06:
It's a suit.

[00:01:04] Speaker 06:
It only is an interest that comes about when the government has to sue a surety in a collection action.

[00:01:11] Speaker 06:
And it's a singular, simple interest for 6%.

[00:01:13] Speaker 06:
Compensatory statutes, such as the statute 1505D, are based upon compound interest, variable interest, tracking the LIBOR rate, tracking the economic balance.

[00:01:28] Speaker 05:
So if we were to agree that the statute was punitive in nature, doesn't the 6% allocated by the statute make the United States more than whole?

[00:01:40] Speaker 06:
Your Honor, if this court agrees that 580 is punitive in nature, the 6% works as that deterrent effect against the surety who's failing to pay.

[00:01:53] Speaker 05:
So when looking at equitable interest... My question was, doesn't it make the United States more than whole?

[00:02:00] Speaker 05:
The rate hasn't been close to 6%.

[00:02:03] Speaker 06:
That's true, Your Honor, for this particular period of time.

[00:02:07] Speaker 06:
Right, and for the facts of this case.

[00:02:09] Speaker 06:
But it wouldn't... It can be viewed that way, but it wouldn't carry that deterrent effect that the 6% works with.

[00:02:19] Speaker 06:
So if

[00:02:21] Speaker 06:
you equate 580 with compensatory interest, that 6% rate is watered down.

[00:02:29] Speaker 06:
As the court said below, the prevailing rates between the last 10 years, it's 1.7%.

[00:02:34] Speaker 06:
That reduces the deterrent effect of 580.

[00:02:37] Speaker 05:
The CITs sure seem to look at this case specifically and said an award was inappropriate in this quote in this case.

[00:02:51] Speaker 05:
It didn't ever say, as far as I can tell, that it couldn't award prejudgment interest under both equity and 580.

[00:03:00] Speaker 06:
That's true, Your Honor.

[00:03:02] Speaker 05:
However, that's where we're saying... So we're back to you're saying this is the facts of this case.

[00:03:07] Speaker 06:
That's true, Your Honor.

[00:03:07] Speaker 06:
That's why we're saying that there's error here, because there's error in the lower courts equating 580 with compensatory interest.

[00:03:16] Speaker 06:
Compensatory interest does, at some points,

[00:03:19] Speaker 06:
run alongside 580 when we're talking about when there's room in the bond for 1505D interest that the surety picks up 1505D interest runs against the importer.

[00:03:29] Speaker 06:
And as a compensatory statute, it has a LIBOR rate involved.

[00:03:32] Speaker 05:
So are you abandoning your argument that the United States has not been made whole?

[00:03:38] Speaker 06:
I am not, Your Honor.

[00:03:39] Speaker 06:
The United States has not been made whole.

[00:03:41] Speaker 06:
I'm saying that there are instances not in this case.

[00:03:44] Speaker 06:
Well, but we're only looking at this case.

[00:03:46] Speaker 06:
Yes, Your Honor.

[00:03:49] Speaker 06:
There are instances where 1505D and 5E run together.

[00:03:56] Speaker 06:
And that 1505D would run to the extent of the bond.

[00:04:03] Speaker 06:
Here, the bond already reached the top just on duties alone.

[00:04:09] Speaker 06:
There was no chance to get anything, any sort of compensatory interest against the surety.

[00:04:16] Speaker 06:
There is no statute to get compensatory interest against the surety.

[00:04:20] Speaker 06:
That's why we're seeking 580 or equitable interest here.

[00:04:23] Speaker 06:
Didn't the court award 6% interest?

[00:04:27] Speaker 06:
It did.

[00:04:27] Speaker 06:
The court awarded 6% interest pursuant to the 580 statute.

[00:04:32] Speaker 06:
But as this court, in the first time we were up on appeal, noted, 580 is a broad and independent statute.

[00:04:42] Speaker 06:
And this court looked at,

[00:04:44] Speaker 05:
uh... the federal register notice that was put out nineteen eighty-three federal register notice and go back to my question my question is you see you're looking at me and saying the government has not been made whole but it received more than it would have under live or so how has not been made more than whole under the facts of this case you are

[00:05:12] Speaker 06:
The 580 interest statute acts as a deterrent.

[00:05:16] Speaker 06:
It has a deterrent effect.

[00:05:17] Speaker 06:
It's not a compensatory interest statute.

[00:05:20] Speaker 06:
So it runs in the manner in which it's described.

[00:05:26] Speaker 06:
And it's both described in the 1986 Federal Register Notice put out by customs.

[00:05:32] Speaker 06:
The recalcitrant surety, the surety who is not paid, is going to be subject to compensatory interest in addition to a 6%

[00:05:41] Speaker 06:
interest that serves as a deterrent.

[00:05:45] Speaker 06:
So there are two types of interest.

[00:05:48] Speaker 06:
And 580 does not serve as a compensatory type interest.

[00:05:51] Speaker 06:
It's not built for that.

[00:05:52] Speaker 05:
So in a changed hypothetical world where their interest rate was 12%, as we all remember we're old enough to, let's say you only received 6% from the court.

[00:06:10] Speaker 05:
Would you be seeking another 12% to make you whole?

[00:06:13] Speaker 06:
Yes, Your Honor.

[00:06:14] Speaker 06:
We would, because there are two distinct purposes.

[00:06:16] Speaker 06:
There are two functions of these interests that we're seeking here.

[00:06:20] Speaker 01:
Are you saying, Mr. King, that while in a strictly monetary sense the government was made whole, it wasn't made whole in the statutory objective sense in terms of the goal of compensation as opposed to punitive?

[00:06:38] Speaker 06:
Exactly, Your Honor.

[00:06:39] Speaker 01:
Strictly monetarily, you came out well, but in terms of the objectives of the statute, you didn't.

[00:06:45] Speaker 06:
For this particular time period, we did.

[00:06:47] Speaker 06:
But in the long view or in the historic view, that's not necessarily the case.

[00:06:52] Speaker 06:
And the surety can completely avoid equitable and 580 interest.

[00:06:58] Speaker 06:
If they dispute a bill that customs sends out,

[00:07:02] Speaker 06:
They can protest pursuant to 1581A.

[00:07:06] Speaker 06:
They could prepay the funds to get into court if the protest is denied.

[00:07:10] Speaker 06:
And then if they are turned out to be right by the court, it would be the government that would be giving them interest.

[00:07:18] Speaker 01:
Let me ask you one other thing.

[00:07:20] Speaker 01:
When you got up today in order of argument, you said there was an abuse of discretion because of an error of law.

[00:07:25] Speaker 01:
And in the brief, it didn't really come out and say error of law.

[00:07:30] Speaker 01:
just sending generally abusive discretion.

[00:07:34] Speaker 01:
It seems that the judge engaged in a balancing of the equitable interest here.

[00:07:40] Speaker 01:
That was kind of in line with our initial case.

[00:07:43] Speaker 01:
And I think there's another case that supports that approach.

[00:07:47] Speaker 01:
Are you saying that it's wrong as a matter of law to balance the equities?

[00:07:53] Speaker 06:
What we're saying it's wrong as a matter of law to look at 580 interest as compensatory interest.

[00:08:00] Speaker 06:
580 has a different function and a different purpose.

[00:08:03] Speaker 03:
And those functions and purposes... But if it was compensatory interest, it would have been at the LIBOR rate, yes?

[00:08:11] Speaker 06:
If it was compensatory interest, it would have been at the LIBOR rate.

[00:08:14] Speaker 06:
It would have been that type of structure that we see.

[00:08:15] Speaker 03:
So you would have received somewhat less.

[00:08:19] Speaker 06:
Yes, but we would also be seeking 580.

[00:08:22] Speaker 06:
We're seeking dual forms of interest in order to make sure sureties do what they're supposed to do.

[00:08:29] Speaker 06:
The shorty... Would the LIBOR rate have been?

[00:08:32] Speaker 06:
Your Honor, as the lower court went through and they did an analysis of the LIBOR rate and what that would have been over the 10-year period, and I think they came out to like 1.7%, that's true.

[00:08:47] Speaker 06:
But the LIBOR rate at that particular time period would diminish the effect of 580 interest in the 6%

[00:08:57] Speaker 06:
that is supposed to be the deterrent effect, we would also seek compensatory interest in addition to that.

[00:09:04] Speaker 06:
And that's not unlike statutes in the tax world or general government indebtedness statutes.

[00:09:12] Speaker 00:
Can a court impose equitable interest as a matter of a penalty?

[00:09:20] Speaker 00:
Could a court sitting say, you know, I think that we need something greater than 580 interest?

[00:09:30] Speaker 06:
The court is, when we seek equity, we seek fair compensation.

[00:09:40] Speaker 00:
I understand that.

[00:09:42] Speaker 00:
I'm just asking whether a court can't, as a matter of equity,

[00:09:45] Speaker 00:
impose a number that they say is for punitive as well.

[00:09:48] Speaker 00:
We think the circumstances here of this particular person didn't get the message.

[00:09:52] Speaker 00:
They need an additional whack.

[00:09:55] Speaker 00:
Tailor it to the presiding judge has been focusing in this case on the particular facts of this case and whether or not there's reversible error here.

[00:10:05] Speaker 00:
And it sounds to me like that's a mountain that's pretty high for you to climb on the facts of this case.

[00:10:12] Speaker 00:
But I wonder why you're

[00:10:14] Speaker 00:
worry, your need for some form of punishment, in at least some of these cases, couldn't be addressed by the government pointing to the judge and saying, well, you have the authority under your equitable side.

[00:10:27] Speaker 00:
You know, equity deals with unclean hands, equity deals with people that don't behave properly.

[00:10:32] Speaker 00:
Why isn't that valve sufficient for you?

[00:10:36] Speaker 06:
I suppose since equity is a judge made

[00:10:40] Speaker 06:
law, then I suppose that the judge could do that in effect.

[00:10:46] Speaker 06:
However, what we're seeking is to serve the purposes... But you didn't ask for this case.

[00:10:51] Speaker 00:
You didn't ask for a major additional measure, a quack, under equitable actions.

[00:10:57] Speaker 00:
Could be any number, right?

[00:11:00] Speaker 00:
What's the maximum or minimum that a court can impose under equitable actions?

[00:11:07] Speaker 06:
Well, Your Honor, what we sought was a

[00:11:09] Speaker 00:
uh... the time value of money fair compensation for the being without any limits uh... cut a court for example say well you know we've got six percent of the statute under 580 LIBOR is only one percent but we think about twelve percent is the right number in this case your honor i believe that equity would be uh... controlled by fairness concepts uh... so it would be what i mean fairness if you're agreeing with me that a judge could take

[00:11:39] Speaker 00:
misbehavior or the need to be punished in the consideration of equity, there wouldn't be any limit.

[00:11:44] Speaker 00:
The judge could tailor the penalty to the size of the offense.

[00:11:50] Speaker 06:
I think it's different from a different type of equitable relief is what you're proposing.

[00:11:59] Speaker 06:
And I think what we were seeking is equitable compensatory interest based on the time value of money.

[00:12:07] Speaker 06:
And 580 interest, which is the statutory interest, which is a flat, a straight 6% simple interest, which serves a different purpose.

[00:12:15] Speaker 00:
So what we're seeing... But that's a stated number, 6%, right?

[00:12:21] Speaker 00:
Yes.

[00:12:21] Speaker 00:
And so you're saying 6% is a penalty that fits all crimes.

[00:12:27] Speaker 00:
Aren't there going to be degrees?

[00:12:29] Speaker 00:
The government's going to be more upset with some importer than with others and want to...

[00:12:35] Speaker 00:
admonish them a little more, maybe if they were calcitrant, the kind of people that do this all the time and you really want to send them the message.

[00:12:44] Speaker 00:
Why is 6% a good message if that's the same penalty you give to a person, a first offender?

[00:12:49] Speaker 06:
Well, Your Honor, 6% is specifically the statute, or 5% is specifically the statute for recalcitrant surety.

[00:12:56] Speaker 00:
You're in essence saying that Congress decided as a matter of penalties, this is penalty.

[00:13:00] Speaker 00:
that there's a one-size-fits-all.

[00:13:03] Speaker 00:
One size of a penalty fits all kinds of offenses.

[00:13:08] Speaker 00:
Doesn't that seem to ascribe to Congress an odd moody?

[00:13:14] Speaker 06:
Your Honor, I wouldn't say it fits all events because it's specifically tailored for a surety against a surety who issues a bond for duties in which the government has had to sue to collect.

[00:13:27] Speaker 00:
But you have to grant me that

[00:13:29] Speaker 00:
You can have a situation where this is the first time somebody's ever stubbed their toe in this regard, and they have a few excuses as to why they did it, comparing that and border that surety to someone who the government is chases every single case.

[00:13:44] Speaker 06:
Well, Your Honor, they would have to forego the usual route of bringing their disputes to the government.

[00:13:50] Speaker 06:
They would have to forego 1581A where they could have protested and then brought a denied protest to the court.

[00:13:57] Speaker 06:
So they would choose to sit back.

[00:13:59] Speaker 06:
and risk the government coming after them and risk the government seeking 580 and seeking equitable interest.

[00:14:05] Speaker 06:
So the statute 580 is specifically tailored for this particular type of failure by the surety, and it's a deterrent so that we never have to be here again specifically.

[00:14:19] Speaker 06:
And we've seen this case and some other cases with the same surety, and we've seen

[00:14:27] Speaker 06:
Other cases with different sureties going through the 1581A route, where they're not subject to 580 interest, and they're not... Your appeal rises or falls with your punitive argument, right?

[00:14:41] Speaker 00:
There's not much left of your appeal if we disagree with you and we say this 580 is not a punitive statute.

[00:14:47] Speaker 06:
Our appeal is the duality of 580 versus equicompensatory interest.

[00:14:53] Speaker 00:
Where is the abuse and discretion?

[00:14:55] Speaker 00:
The only possible abuse of discretion I could see here would be if the trial court interpreted the law wrong.

[00:15:03] Speaker 00:
That is to say that they looked at both of these as being compensatory as opposed to one being punitive.

[00:15:11] Speaker 00:
So if you lose on the punitive argument, then all three legs of your stool are gone.

[00:15:18] Speaker 06:
In essence, that's true, Your Honor, in that the purpose of 580

[00:15:23] Speaker 06:
is a deterrent and an incentive that does not happen.

[00:15:27] Speaker 00:
I understood your legal argument, your abusive discretion argument, because that's the standard of review we're using, is that whenever there's an error of law, there's automatically an abuse of discretion.

[00:15:40] Speaker 00:
That was how you were filtering your appeal through the relevant standard of review.

[00:15:47] Speaker 06:
Yes, Your Honor.

[00:15:48] Speaker 00:
So I say, if we disagree with you on your legal theory, you'll have a case.

[00:15:53] Speaker 06:
That's likely true, Your Honor.

[00:15:56] Speaker 06:
However, that is the error.

[00:15:58] Speaker 06:
I want to know.

[00:15:58] Speaker 05:
Thank you.

[00:15:59] Speaker 05:
Need to wrap up, Mr. Kenney.

[00:16:00] Speaker 05:
You're over your time.

[00:16:01] Speaker 05:
Yes, Your Honor.

[00:16:02] Speaker 06:
So because the matter and method in which the trial court only awarded 580 and not equitable, and the fact that they equated compensatory interest with 580, it precluded the function of the two types of interest we seek.

[00:16:16] Speaker 06:
We seek both to carry out

[00:16:18] Speaker 06:
the punitive effect or the deterrent effect of 580, and we seek compensatory interest under the equity of the court.

[00:16:24] Speaker 05:
I'm going to give you two minutes for your reply.

[00:16:28] Speaker 05:
Thank you, Your Honor.

[00:16:30] Speaker 05:
We paid into your time.

[00:16:34] Speaker 05:
Mr. Shelley, nice to see you.

[00:16:36] Speaker 05:
You too, Your Honor.

[00:16:36] Speaker 05:
If you want, I'll give you another three minutes if you feel the need.

[00:16:40] Speaker 02:
I don't think I'll need it, Your Honor.

[00:16:41] Speaker 02:
Thank you.

[00:16:41] Speaker 02:
My name is Herbert Shelley.

[00:16:43] Speaker 02:
I'm the counsel for American Home Assurance.

[00:16:48] Speaker 02:
I think this is a pretty simple situation because this court in the earlier case on this one determined that 580 did apply to anti-dumping cases.

[00:17:04] Speaker 05:
There's a parallel case which was heard in February.

[00:17:08] Speaker 05:
Is any part of your argument different

[00:17:11] Speaker 05:
from the February argument?

[00:17:13] Speaker 02:
The only argument different would be to address Mr. Kinney's argument that 580 should be considered as a penalty instead of as interest.

[00:17:21] Speaker 02:
And I think if you look at the plain meaning of that statute, it says interest.

[00:17:26] Speaker 02:
It mentions nothing on penalty.

[00:17:28] Speaker 02:
It applies a 6% rate, which was the interest rate that the US government paid to bondholders in 1799.

[00:17:36] Speaker 02:
And it was the only rate that was applicable to both sides of that equation.

[00:17:41] Speaker 02:
So clearly, from our perspective, it is an interest statute.

[00:17:45] Speaker 01:
Can I only ask you?

[00:17:47] Speaker 01:
You're urging here, obviously, an affirmance.

[00:17:50] Speaker 01:
But can you ever envision a situation where it might be appropriate to award both 580 interest and equitable prejudgment interest?

[00:18:01] Speaker 01:
In other words, do we, in a decision today, are we speaking for all circumstances as a hard and fast rule if we were to

[00:18:09] Speaker 01:
affirm the decision below.

[00:18:11] Speaker 01:
Or could there be a situation where both might be available?

[00:18:15] Speaker 02:
I would not think so, Your Honor, because 580 is a statutory interest.

[00:18:19] Speaker 02:
For one thing, it's not an equitable interest.

[00:18:21] Speaker 02:
It's set out in the statute.

[00:18:23] Speaker 02:
And every statute cited by the government in their brief on which both penalties and interest are applicable, that was written into the statute.

[00:18:31] Speaker 02:
There is no equitable interest written into 580.

[00:18:34] Speaker 02:
If it were to be, it would be under consideration of statutory interest that might be applicable under some circumstance.

[00:18:40] Speaker 02:
But I believe what would be the more appropriate situation, if there were to be more interest applicable than the 6%, that the trial judge would take that into consideration in looking at the facts of his case and determine that there should be a greater interest applicable to compensate the government.

[00:18:58] Speaker 04:
But there are other avenues that the CIT can follow if misconduct is

[00:19:05] Speaker 04:
blatant enough.

[00:19:06] Speaker 02:
Exactly.

[00:19:06] Speaker 02:
Once it's before the judge, he can look at all facts beforehand to determine what is the appropriate interest to apply for punishment or whatever other reason he may determine is there.

[00:19:20] Speaker 02:
Pretty much that's the argument.

[00:19:22] Speaker 02:
There was no abuse of discretion in what the judge did.

[00:19:25] Speaker 02:
The legal standard was to determine how to properly compensate the government in this

[00:19:34] Speaker 02:
The factual findings are supportable by the record, and there is nothing that serves to show that this is a 580s penal statute that should be applicable as an interest, and that equitable interest should be applied on top of it as additional compensation for the government.

[00:20:00] Speaker 02:
And in fact,

[00:20:01] Speaker 02:
Our argument is, we have other arguments about why even equitable interest should not be applied other than just looking at the legal standard.

[00:20:10] Speaker 02:
We have our burden argument about why this is not even government funds.

[00:20:15] Speaker 02:
This is funds that will eventually go to private parties.

[00:20:21] Speaker 02:
We have, let me get rid of my glasses.

[00:20:26] Speaker 02:
The argument that statutes that apply both penal and penalties and interest, it's yet written in the statute when both are to be applied for different purposes.

[00:20:38] Speaker 02:
That's not the situation here.

[00:20:40] Speaker 00:
And so from our perspective... The government has helpfully defined the only issue we have to decide in this case, really, from my perspective, which is whether or not 580 is punitive, and if it's not, game's over.

[00:20:52] Speaker 02:
I think in this particular case, that is the issue.

[00:20:56] Speaker 00:
And if this is not a penal statute... I didn't understand the government to be making an abuse of discretion standard based on anything other than the error in law.

[00:21:05] Speaker 00:
That's correct.

[00:21:06] Speaker 00:
That's very helpful to have.

[00:21:09] Speaker 02:
So that's really pretty much our perspective on this case.

[00:21:14] Speaker 02:
We don't have a lot of the extraneous issues that are in some of these other cases.

[00:21:19] Speaker 04:
So you don't need those three minutes?

[00:21:20] Speaker 04:
I don't need the three minutes, Your Honor.

[00:21:23] Speaker 04:
Thank you, Mr. Chairman.

[00:21:24] Speaker 04:
You're welcome.

[00:21:33] Speaker 06:
Just in response to Council's arguments, I think the duality of these two types of interests is not any different than what we see in the tax statutes specifically.

[00:21:47] Speaker 06:
And the effect of each one has a specific purpose.

[00:21:51] Speaker 06:
One being a deterrent, the other being his full compensation.

[00:21:55] Speaker 06:
As the court noted, for this moment in time, it looks like 6% might be a good compensatory rate or overcompensation, but that's not the purpose of it.

[00:22:08] Speaker 06:
It's deterrent.

[00:22:09] Speaker 06:
And I ask that the court reverse the trial of court as to the failure to grant equitable interest here.

[00:22:16] Speaker 06:
Thank you.

[00:22:16] Speaker 05:
When you say for this moment in time, of course you mean for this case.

[00:22:22] Speaker 06:
Really?

[00:22:22] Speaker 06:
Well, yeah, for this case, but also for the use of the statute proceeding against all similar type cases.

[00:22:37] Speaker 06:
Thank you.

[00:22:37] Speaker 06:
Thank you.

[00:22:38] Speaker 05:
The matter will stand submitted.

[00:22:40] Speaker 05:
Thank you, counsel.

[00:22:40] Speaker 05:
Nice to see you both again.