U.S. Auto Parts Network, Inc. v. United States

319 F.Supp.3d 1303

U.S. AUTO PARTS NETWORK, INC., Plaintiff,

v.UNITED STATES, United States Department of Homeland Security, Secretary Kirstjen Nielsen, and Chief Frederick J. Eisler, III, Defendants.

Court No. 18–00068

Slip Op. 18–62

United States Court of International Trade.

Dated: May 25, 2018

Barry F. Irwin, Christopher D. Eggert, Iftekhar Ahmad Zaim, and Reid P. Huefner, Irwin IP LLC, of Burr Ridge, IL, argued for Plaintiff U.S. Auto Parts Network, Inc.

Beverly A. Farrell and Monica P. Triana, Trial Attorneys, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, N.Y., argued for Defendants United States, U.S. Department of Homeland Security, Secretary Kirstjen Nielsen, and Chief Frederick J. Eisler, III. With them on brief were Chad A. Readler, Acting Assistant Attorney General, and Amy M. Rubin, Assistant Director. Of counsel was Edward N. Maurer, U.S. Customs and Border Protection.

OPINION AND ORDER

Choe–Groves, Judge:

Choe–Groves, Judge: Before the court is a motion submitted by Plaintiff U.S. Auto Parts Network, Inc. ("U.S. Auto") to convert the temporary restraining order to a preliminary injunction. U.S. Auto is a publicly traded company incorporated in Delaware and headquartered in Carson, California. Plaintiff initiated this action to contest the imposition of an enhanced single entry bond requirement in the amount of three times the entire shipment value on each container of merchandise imported by U.S. Auto ("SEB Requirement"), which U.S. Customs and Border Protection ("Customs") mandated in response to Plaintiff's continued importation of goods alleged to infringe trademarks in violation of 15 U.S.C. § 1124 (2012)¹ and 19 U.S.C. § 1526(e). The treble bond requirement, enforced against each of U.S. Auto's shipments, resulted in a single entry bond totaling approximately $9 million at the time Customs imposed the SEB Requirement. This is in contrast to the previous continuous bond of $200,000 for all of U.S. Auto's annual shipments. Because the court determines that Plaintiff has met its burden of proof with respect to the requisite four factors, the motion for preliminary injunction is granted.

BACKGROUND

The court presumes familiarity with the facts of this case. See U.S. Auto Parts Network, Inc. v. United States, 307 F.Supp.3d 1373, 1375–81, 2018 WL 1725767, at *1–6 (CIT Apr. 6, 2018). This court issued an order granting in part and denying in part Plaintiff's Motion for Temporary Restraining Order on April 6, 2018, which partially enjoined the ability of Defendants (collectively, "Government") to enforce the SEB Requirement. See id. at 1381, 2018 WL 1725767 at *6. Pursuant to a telephone conference requested by Defendants, the court issued an order clarifying the implementation of the Temporary Restraining Order on April 12, 2018. See Order, April 12, 2018, ECF No. 28. Plaintiff requested conversion of the temporary restraining order into a preliminary injunction during the telephone conference, resting on its previous submissions. See id.; see also Mem. P. & A. Supp. U.S. Auto's Appl. TRO, Apr. 2, 2018, ECF No. 6; Letter Regarding Issues Relating TRO, Apr. 11, 2018, ECF No. 26. Defendants filed their timely response to the motion for preliminary injunction. See Defs.' Resp. Pl.'s Mot. Prelim. Inj., Apr. 16, 2018, ECF No. 29. The court held a hearing on this matter on May 9, 2018. See Preliminary Injunction Hearing, May 9, 2018, ECF No. 44; see also Tr. Prelim. Inj. Hr'g, May 21, 2018, ECF No. 56 ("Hr'g Tr.").

DISCUSSION

This court has jurisdiction pursuant to 28 U.S.C. § 1581(i)(4). Rule 65(a) of the Rules of this Court allows for the issuance of a preliminary injunction in an action. USCIT R. 65(a). The court considers four factors when evaluating whether to grant a temporary restraining order or preliminary injunction. See Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). These factors are: (1) whether the party will incur irreparable harm in the absence of such injunction; (2) whether the party is likely to succeed on the merits of the action; (3) whether the balance of hardships favors the imposition of the injunction; and (4) whether the injunction is in the public interest. See id.; see also Wind Tower Trade Coal. v. United States, 741 F.3d 89, 95 (Fed. Cir. 2014). No one factor is " ‘necessarily dispositive,’ because ‘the weakness of the showing regarding one factor may be overborne by the strength of the others.’ " Belgium v. United States, 452 F.3d 1289, 1292–93 (Fed. Cir. 2006) (citing FMC Corp. v. United States, 3 F.3d 424, 427 (Fed. Cir. 1993) ). The factors should be weighed according to a "sliding scale," however, which means that a greater showing of irreparable harm in Plaintiff's favor lessens the burden on Plaintiff to show a likelihood of success on the merits. See id. (internal citations omitted). The court will evaluate each of the four factors in turn.

A. Irreparable Harm

Plaintiff must show that it will suffer irreparable harm absent a grant of injunctive relief. See Winter, 555 U.S. at 20, 129 S.Ct. 365. Irreparable harm includes "a viable threat of serious harm which cannot be undone." Zenith Radio Corp. v. United States, 710 F.2d 806, 809 (Fed. Cir. 1983) (internal citations omitted). An allegation of financial loss alone generally does not constitute irreparable harm if future money damages can provide adequate corrective relief. See Sampson v. Murray, 415 U.S. 61, 90, 94 S.Ct. 937, 39 L.Ed.2d 166 (1974). Bankruptcy or substantial loss of business may constitute irreparable harm, however, because "loss of business renders a final judgment ineffective, depriving the movant of meaningful judicial review." Harmoni Int'l Spice, Inc. v. United States, 41 CIT ––––, ––––, 211 F.Supp.3d 1298, 1307 (2017) (citing Doran v. Salem Inn, Inc., 422 U.S. 922, 932, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975) ). "Price erosion, loss of goodwill, damage to reputation, and loss of business opportunities" may also constitute irreparable harm. Celsis In Vitro, Inc. v. CellzDirect, Inc., 664 F.3d 922, 930 (Fed. Cir. 2012) (internal citations omitted).

Mr. Coleman, U.S. Auto's Chief Executive Officer, testified at the Preliminary Injunction Hearing. He described how U.S. Auto "spent about 20 years establishing [its] supply chain across 350 factories." See Hr'g Tr. 59. Plaintiff's witness testified that without the relief granted in a preliminary injunction, "those suppliers will be forced to go and ... offer their capacity to other retailers or our competitors. So we would not be able to reestablish probably any of those." See id. at 59–60. Because of the lack of inventory, U.S. Auto has also experienced impact to its wholesale business, a decrease in revenues and margins, and a forced reduction to its workforce. See id. at 60–61.

Plaintiff's witness provided testimony at the hearing describing the company's inability to pay the SEB Requirement. U.S. Auto's EBITDA in 2017 was the highest it has been in the past five years, at $11.4 million.² See id. at 51. At the time Customs imposed the SEB Requirement, U.S. Auto would have been required to put up a bond valued at $9 million. See id. at 48. Because inventory continues to grow, the bond value required also increases, due to the nature of a single-entry bond. See id. at 47–48 ("The bond amount is a point in time. So it all depends on how much inventory is there. But, remember, inventory grows each week, so it required new bonding."). U.S. Auto was not able to post the $9 million bond because various sureties required full cash collateral for the bond. See id. at 49–50 (Mr. Coleman's testimony), 127–29 (Mr. Roberts' testimony). Mr. Coleman testified that U.S. Auto would have been able to meet the SEB Requirement, "at best, a couple weeks," before going out of business. See id. at 51. Given the difficulties that U.S. Auto faced in paying the exorbitant SEB Requirement, the company's "inability to predict" Customs' actions, and "the disruption that this has caused" the business, Mr. Coleman stated that U.S. Auto has stopped importing vehicle grilles completely, which represents "roughly $8 million" of the company's annual revenue. See id. at 46.

Based on the credible testimony proffered at the hearing, the court concludes that Plaintiff has adequately shown irreparable harm in support of its motion for injunctive relief.

B. Balance of Hardships

When evaluating a request for a preliminary injunction, it is the court's responsibility to balance the hardships on each of the Parties. See Winter, 555 U.S. at 20, 129 S.Ct. 365. In addition to the significant financial burden and business disruption caused by the SEB Requirement, as discussed above, Plaintiff's witness described at the hearing how U.S. Auto struggled to alter its importation plans and supply chain in order to comply with the demands of Customs officers at the Port of Norfolk. Mr. Coleman testified that U.S. Auto has a "very large and complex supply chain" with "over 350 different factories," which results in a "long time between when we send an order for something to be removed from future orders before it is actually removed across the entire supply chain." Hr'g Tr. 32. Due to the time it takes for international transit and fulfillment of each shipment, "on grilles, most orders would end up being ordered two to four months in advance." Id. at 33. "Items that are in the container are impossible to turn around," and "[i]tems that have left the factory are near impossible to turn around." Id. For certain grille models, Mr. Coleman stated that it may take six to seven months to shut down the supply chain. Id. at 84. Plaintiff illustrated through testimony how difficult it was for U.S. Auto to remove allegedly infringing grilles from its supply chain.

Mr. Coleman also testified that U.S. Auto had approximately 160 containers residing at the Port of Norfolk at the time of the hearing. See id. at 56. Approximately 99% of the...