Slip Op. 17-83
UNITED STATES COURT OF INTERNATIONAL TRADE
CANNAKORP, INC.,
Plaintiff,
Before: Mark A. Barnett, Judge
v.
Court No. 17-00092
UNITED STATES,
Defendant.
MEMORANDUM AND ORDER
[Defendant’s motion to dismiss for lack of subject matter jurisdiction is granted.
Plaintiff’s motions for a show cause order and for leave to file a reply in support of its
motion for a show cause order are denied as moot.]
Dated: July 11, 2017
Kristin H. Mowry, Mowry & Grimson, PLLC, of Washington, D.C., for plaintiff. With her
on the brief were Jeffrey S. Grimson and Jill A. Cramer of Mowry & Grimson, PLLC, of
Washington, D.C., and William M. Jay and Andrew Kim, Goodwin Proctor LLP, of
Washington, D.C.
Guy Eddon, Trial Attorney, Civil Division, Commercial Litigation Branch, U.S.
Department of Justice, of New York, NY, for defendant. With him on the brief were
Chad A. Readler, Acting Assistant Attorney General, Patricia M. McCarthy, Assistant
Director, and Aimee Lee, Senior Trial Counsel. Of Counsel on the brief was Alexandra
Khrebtukova, Office of Chief Counsel, International Trade Litigation, U.S. Customs and
Border Protection.
Barnett, Judge: CannaKorp, Inc. (“CannaKorp” or “Plaintiff”) brings this action
against the United States (“Defendant”) to challenge a pre-importation ruling issued by
U.S. Customs and Border Protection (“Customs” or “CBP”). See Compl., ECF No. 2.
Defendant moves to dismiss the complaint for lack of subject matter jurisdiction and
failure to state a claim pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of the
Court No. 17-00092 Page 2
United States Court of International Trade (“USCIT”). See Def.’s Mot. to Dismiss and
Def.’s Mem. in Supp. of its Mot. to Dismiss (“Def.’s Mot.”), ECF No. 17. Plaintiff
opposes this motion. See Pl.’s Resp. to Def.’s Mot. to Dismiss (“Pl.’s Resp.”), ECF No.
18. For the reasons discussed below, the court grants Defendant’s motion to dismiss
for lack of subject matter jurisdiction and dismisses this case.1
BACKGROUND
In April 2016, CannaKorp requested a pre-importation ruling from CBP regarding
its “single-use, pod-based cannabis vaporizer system known as the CannaCloud.”
Compl. ¶¶ 1, 24-25. In its ruling request, CannaKorp sought to “establish that
importation of the CannaCloud is lawful under the Controlled Substances Act [(“CSA”)],”
21 U.S.C. §§ 801 et seq., because it fell within the ambit of the CSA’s exemption
provision, 21 U.S.C. § 863(f)(1). 2 Compl., Ex. 3 at 1, ECF No. 2-1; see also Compl.
¶¶ 26-30. On March 24, 2017, CBP issued a ruling that the “[CannaCloud] is not
exempted from the prohibition on the importation of drug paraphernalia set forth in 21
U.S.C. § 863(a) and may not be legally imported into the United States because the
1 Plaintiff has moved for an order to show cause why an expedited litigation schedule
should not be entered, Pl.’s Mot. for an Order Directing Def. to Show Cause Why an
Expedited Litigation Schedule Should Not Be Entered in this Action (“Pl.’s Sched.
Mot.”), ECF No. 5, which the court construes as a motion for an expedited briefing
schedule, and for leave to file a reply in support of that motion, Mot. for Leave to File
Reply in Supp. of Pl.’s Mot. for an Order Directing Def. to Show Cause Why an
Expedited Litigation Schedule Should Not Be Entered in this Action, ECF No. 15.
Because the court finds that it lacks subject matter jurisdiction over this action, Plaintiff’s
motions are denied as moot.
2 Subsection 863(f)(1) provides that “any person authorized by local, State, or Federal
law to manufacture, possess, or distribute such items” is not subject to the prohibitions
stated in section 863. 21 U.S.C. § 863(f)(1)(2012).
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exemption set forth in 21 U.S.C. § 863(f)(1) does not apply.” Compl., Ex. 1 at 5, ECF
No. 2-1. On April 27, 2017 CannaKorp filed a complaint seeking judicial review of this
Customs ruling. See Compl. Plaintiff invokes jurisdiction pursuant to 28 U.S.C.
§ 1581(h), 3 alleging that without pre-importation review, CannaKorp “would experience
irreparable harm . . . through disruption of supplier relationships, lost business
opportunities, and reputational harm [that] threatens the complete failure of
CannaKorp’s business.” Compl., ¶¶ 7, 3-11. Plaintiff further alleges that CBP’s ruling
was “arbitrary, capricious, an abuse of discretion and otherwise not in accordance with
law,” Compl. ¶ 53, 57, 60, and asks the court to (i) order expedited consideration and
briefing; (ii) declare CBP’s ruling unlawful; (iii) “declare that the CannaCloud is not
restricted merchandise” because it is exempted from the CSA pursuant to 21 U.S.C.
§ 863; (iv) order any other relief deemed just and proper; and (v) award CannaKorp and
attorney’s fees and costs pursuant to 28 U.S.C. § 2412(d), id. ¶ 61. Defendant has
moved to dismiss the complaint for lack of subject matter jurisdiction and failure to state
a claim upon which relief can be granted. See Def.’s Mot. Plaintiff opposes this motion.
See Pl.’s Resp.
SUBJECT MATTER JURISDICTION
To adjudicate a case, a court must have subject-matter jurisdiction over the
claims presented. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94-95
(1998). “[W]hen a federal court concludes that it lacks subject-matter jurisdiction, the
3In its complaint Plaintiff also asserted jurisdiction pursuant to 28 U.S.C. § 1581(i), but
has since withdrawn this invocation. See Compl. ¶ 9; Pl.’s Resp. at 2 n. 1.
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court must dismiss the complaint in its entirety.” Arbaugh v. Y & H Corp., 546 U.S. 500,
514 (2006).
A plaintiff bears the burden of establishing subject-matter jurisdiction. See Norsk
Hydro Can., Inc. v. United States, 472 F.3d 1347, 1355 (Fed. Cir. 2006). When
reviewing a motion to dismiss for lack of subject matter jurisdiction, the court proceeds
according to whether the motion “challenges the sufficiency of the pleadings or
controverts the factual allegations made in the pleadings.” H & H Wholesale Servs.,
Inc. v. United States, 30 CIT 689, 691, 437 F. Supp. 2d 1335, 1339 (2006). When the
motion challenges the sufficiency of the pleadings, the court assumes that the
allegations within the complaint are true. Id. When, as here, “the motion controverts
factual allegations supporting the [c]omplaint, ‘the allegations in the complaint are not
controlling,’ and ‘are subject to fact-finding by the [trial] court.’” Id. at 692, 437 F. Supp.
2d at 1339 (quoting Cedars–Sinai Medical Ctr. v. Watkins, 11 F.3d 1573, 1583–84 (Fed.
Cir. 1993)) (alterations added). Cf. Power-One Inc. v. United States, 23 CIT 959, 962,
83 F. Supp. 2d 1300, 1303 n.9 (1999) (when a party “challenges the actual existence of
subject matter jurisdiction,” the “allegations in Plaintiffs' Complaint are not controlling,
and only uncontroverted factual allegations are accepted as true”).
Pursuant to subsection 1581(h),
The Court of International Trade shall have exclusive jurisdiction of any
civil action commenced to review, prior to the importation of the goods
involved, a ruling issued by the Secretary of the Treasury, . . . relating to . .
. restricted merchandise, . . . or similar matters, but only if the party
commencing the civil action demonstrates to the court that he would be
Court No. 17-00092 Page 5
irreparably harmed unless given an opportunity to obtain judicial review
prior to such importation.
28 U.S.C. § 1581(h).
A plaintiff must show that it has met four requirements to establish jurisdiction
under subsection (h): “1) review must be sought prior to importation; 2) review sought
must be for a ruling; 3) the ruling must relate to certain subject matter; and 4) the
importer must show that irreparable harm will result unless judicial review prior to
importation is obtained.” Am. Frozen Food Inst., Inc. v. United States, 18 CIT 565, 569,
855 F. Supp. 388, 393 (1994) (supplying the requirements); 28 U.S.C. § 2639(b)
(supplying the burden of proof); see also Heartland By-Prods, Inc. v. United States, 31
CIT 1711, 1719, 521 F. Supp. 2d 1386, 1393 (2007), rev’d on other grounds, 568 F. 3d
1360 (Fed. Cir. 2009) (“The heightened burden of having to demonstrate irreparable
harm under § 1581(h) provides grounds for jurisdiction over disputes that might
otherwise be considered speculative or not ripe for review. It is precisely this distinction
that makes jurisdiction under § 1581(h) extraordinary.”) (citations omitted). Only the
fourth prong of the jurisdictional criteria, irreparable harm, is at issue here. See Def.’s
Mot. at 4, 5; Pl.’s Resp. at 5.
LEGAL FRAMEWORK FOR IRREPARABLE HARM
The “standard for proving irreparable harm [in a § 1581(h) case] is essentially
identical to that used to determine irreparable injury in cases where injunctive relief is
sought.” Connor v. United States, 24 CIT 195, 199 (2000) (citation omitted). Plaintiff
must demonstrate, with clear and convincing evidence, that “the harm is highly
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probable.” Id. at 196–97 (citing Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1105 (9th Cir.
1992)). Cf. Thyssen Steel Co. v. United States, 13 CIT 323, 326, 712 F. Supp. 202, 204
(1989) (court denied claim of irreparable harm where plaintiff relied solely on an
affidavit); Holford USA Ltd. v. United States, 19 CIT 1486, 1491-92, 912 F. Supp. 555,
559-60 (1995) (affidavits and letters proffering relevant facts and contract terms
constituted sufficient evidence supporting claim of irreparable harm).
“Irreparable harm is that which ‘cannot receive reasonable redress in a court of
law.’” Connor, 24 CIT at 197 (quoting Manufacture de Machines du Haut-Rhin v. Von
Rabb, 6 CIT 60, 64, 569 F. Supp. 877, 881-82 (1983)). “In evaluating that harm, the
court must consider ‘the magnitude of the injury, the immediacy of the injury, and the
inadequacy of future corrective relief.’” Shree Rama Enter. v. United States, 21 CIT
1165, 1167, 983 F. Supp. 192, 194, (1997) (quoting Queen's Flowers de Colombia v.
United States, 20 CIT 1122, 1125, 947 F. Supp. 503, 506 (1996). Of these three
factors, “immediacy [of the injury] and the inadequacy of future corrective relief” may be
weighed more heavily than magnitude of harm. Nat’l Juice Prods. Ass’n v. United
States, 10 CIT 48, 53, 628 F. Supp. 978, 984 (1986) (citations omitted).
Critically, irreparable harm may not be speculative, see Am. Inst. for Imported
Steel, Inc. v. United States, 8 CIT 314, 318, 600 F. Supp. 204, 209 (1984), or
determined by surmise, Elkem Metals Co. v. United States, 25 CIT 186, 192, 135 F.
Supp. 2d 1324, 1331 (2001) (citation omitted). “It is not enough to establish ‘a mere
possibility of injury, even where prospective injury is great. A presently existing, actual
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threat must be shown.’” Shree Rama, 21 CIT at 1167, 983 F. Supp. at 194–95 (quoting
Zenith Radio Corp. v. United States, 710 F.2d 806, 809 (2009)).
Economic harm, or injury to the business, may constitute irreparable harm when
“the loss threatens the very existence of the movant’s business,” Wisc. Gas Co. v. Fed.
Energy Regulatory Comm’n, 758 F.2d 669, 674 (DC. Cir. 1985) (citing Wash. Metro.
Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 n. 2 (D.C. Cir. 1977)),
and is otherwise noncompensable, Kwo Lee, Inc. v. United States, 38 CIT ___,___, 24
F. Supp. 3d 1322, 1327 (2014) (“Financial loss alone—compensable with monetary
damages—is not irreparable”) (citing Sampson v. Murray, 415 U.S. 61, 90 (1974)).
Economic harm may include financial loss, reputational injuries, and severe business
disruption. Kwo Lee, 24 F. Supp. 3d at 1327 (“Irreparable harm may take the form of
‘[p]rice erosion, loss of goodwill, damage to reputation, and loss of business
opportunities.’”) (quoting Celsis In Vitro, Inc. v. CellzDirect, Inc., 664 F.3d 922, 930
(Fed. Cir. 2012); Sanofi–Synthelabo v. Apotex, Inc., 470 F.3d 1368, 1381–83 (Fed. Cir.
2006)). Generally, however, “[a]llegations of harm to potential future business relations
are too speculative to constitute irreparable harm.” Techsnabexport, Ltd. v. United
States, 16 CIT 420, 428, 795 F. Supp. 428, 437 (1997).
Defendant asserts that the court’s jurisdiction rests on Plaintiff’s ability to show
irreparable harm absent pre-importation judicial review and that it has not done so.
Defendant is correct.
Court No. 17-00092 Page 8
DISCUSSION
Defendant contends that Plaintiff has failed to show by clear and convincing
evidence that it will suffer irreparable harm absent pre-importation judicial review. Def.’s
Mot. at 3-16. Defendant argues that the harms that would allegedly befall CannaKorp, if
it were to await an attempted importation to bring its challenge, are speculative, self-
inflicted, not of the type considered irreparable, and lacking evidentiary support. See
Def.’s Mot. at 8-16; Def.’s Reply Brief in Further Supp. of its Mot. to Dismiss (“Def.’s
Reply”) at 2-14, ECF No. 19. Plaintiff responds that “economic injury that threatens the
viability of a business, and for which no monetary remedy is available, is irreparable,”
and that its proffered evidence is sufficient to carry its burden. Pl.’s Resp. at 6; see also
id.at 6-17. Plaintiff denies that its injury is self-inflicted. See id. at 17-21. Plaintiff
particularly points to financial loss, disruption of business operations (including loss of
key employees, supplier relationships, and manufacturing facilities), and reputational
harm (including loss of market strategy, first-mover status, and consumer goodwill), as
constituting irreparable harm. See id. at 11-14. Plaintiff also argues that this harm is
severe enough to threaten the existence of its business, and that it may not be able to
seek compensation even if it prevails because of the government’s sovereign immunity.
See id. at 6-10.
Plaintiff’s support for its position is limited to two declarations by James Winokur,
the CEO and co-founder of CannaKorp. Compl., Ex. 2 (“Winokur Decl.”), ECF No. 2-1;
Pl.’s Resp., Ex. 1 (“Suppl. Winokur Decl.”, ECF No. 18-1). Plaintiff provides no financial
records or other documents in support of Mr. Winokur’s declarations. This is significant
Court No. 17-00092 Page 9
because the declarations contain numerous vague, speculative, or conclusory
statements, and internal inconsistencies, and are otherwise impossible to corroborate.
During the court’s teleconference of May 3, 2017, CannaKorp declined the court’s offer
of an evidentiary hearing at which it could offer testimony and further evidence in
support of its motion to expedite. 4 As discussed more fully below, the declarations are
insufficient to meet Plaintiff’s burden of proof. Cf. Nat’l Min. Ass'n v. Jackson, 768 F.
Supp. 2d 34, 52 (D.D.C. 2011) (CEO’s conclusory projections regarding harm to the
business are insufficient to establish harm under the standard).
The court recognizes that, as a start-up business, CannaKorp may believe that it
is in a “Catch-22” situation – that it is unable to establish the existence of the economic
harm caused by CBP’s ruling because the ruling prevents it from getting off the ground
and establishing evidence of its viability. Even if there is some basis for that belief, it
does not absolve CannaKorp of the responsibility of supporting its allegations of
irreparable harm with clear and convincing evidence appropriate to its situation. As
discussed below, CannaKorp failed to provide any documentation, records, or third-
party testimony in support of the harms Mr. Winokur asserts are likely and it is on this
basis that CannaKorp’s claims fail.
4 In CannaKorp’s motion to expedite the briefing in this case, Plaintiff asserted that there
was good cause to expedite the briefing schedule because otherwise it would suffer
irreparable harm. See Pl.’s Sched. Mot.
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A. CannaKorp Fails to Establish Actual, Imminent Harm
CannaKorp argues that CBP’s ruling has “placed [it] at imminent risk of failure”
because of the “significant, if not total, disruption of its business operations in the form
of hampered supplier relationships, lost business opportunities, and reputational harm”
resulting from the ruling. Pl.’s Resp. at 2, 11. Defendant contends that Plaintiff’s claim
and Mr. Winokur’s declarations in support of its arguments regarding imminent harm are
speculative, and, thus, fail to demonstrate the irreparable harm required for § 1581(h)
jurisdiction. Def.’s Mot. at 8-12; see also Def.’s Reply at 7-14.
(i) Business Disruption
Business disruption may constitute economic harm when the likelihood and
nature of the disruption is adequately documented. See, e.g., CPC Int’l, Inc. v. United
States, 19 CIT 978, 979, 980-83, 896 F. Supp. 1240, 1243, 1244-45 (1995) (importer
demonstrated harm in the form of costs, expenditures, business disruption, and other
financial losses through affidavits that detailed these costs and disruption with
specificity); Holford, 19 CIT at 1492, 912 F. Supp. at 560 (affidavit attesting to harm in
the form of increased costs, lost profits and loss to business reputation was supported
by letters, relevant contract terms, and details regarding relevant quotas that imposed
costs on the importer); Nat’l Juice Prods., 5 10 CIT at 54, 628 F. Supp. at 984-85
5 Nat’l Juice Products has since been superseded by statute, but the change does not
relate to the propositions for which it is being cited herein. See Precision Specialty
Metals, Inc. v. United States, 24 CIT 1016, 1041, 116 F. Supp. 2d 1350, 1375 (2000)
(discussing change to statutory provisions detailing the process by which Customs
makes changes to its practice or position).
Court No. 17-00092 Page 11
(plaintiff provided third party affidavits attesting that compliance with a new Customs
ruling would take up to two and a half years and prevent satisfaction of customer
orders). In contrast, the Winokur declarations contain several vague and internally
inconsistent statements on the extent and nature of the alleged disruption.
First, Mr. Winokur declares that “[t]he CannaCloud is now ready for commercial
manufacture and launch.” Winokur Decl. ¶ 11. He then, however, avers that
“preparation for launch requires many months of lead time,” Winokur Decl. ¶ 16,
“[s]tarting manufacture would require additional capital,” Suppl. Winokur Decl. ¶ 7, and
“the financial forecast requires [CannaKorp] to raise an additional $10 million by the first
quarter of 2018 . . . [to] be used for inventory, shipping, and distribution,” Winokur Decl.
¶ 20. It is unclear from these statements whether the product is actually ready for
launch or whether CannaKorp will first need to raise $10 million, followed by the
necessary “lead time” before the product can be launched.
Second, Mr. Winokur’s declarations contain inconsistent assertions regarding the
imminent closure of the business. In the first declaration, prepared in late April 2017,
Mr. Winokur estimates the business will close in August 2017. Winokur Decl. ¶ 18
(“[t]he threat of further delay seriously threatens the company’s viability [and that]
without additional revenue or funding, CannaKorp projects that it will run through its
current capital by August 2017”). However, in his second declaration, filed in early June
2017, Mr. Winokur informs the court that the business now has “enough cash to operate
until October” because it has conducted “additional capital fundraising.” Suppl. Winokur
Decl. ¶ 8.
Court No. 17-00092 Page 12
Third, Mr. Winokur uses vague and conditional language to describe the nature
and likelihood of harm to its supplier and manufacturer relationships. 6 Mr. Winokur
avers “it is very likely” that “current circumstances” will result in “substantial breach of
our partnership agreements,” whereby CannaKorp’s “partners would dismantle the
customized CannaCloud assembly lines,” Suppl. Winokur Decl. ¶ 10 (emphasis added),
and that “in the event of substantial delay, the Chinese company is likely to terminate its
relationship with CannaCloud,” Winokur Decl. ¶ 33 (emphasis added), resulting in “a
potential claim for damages” and a “likely los[s of] its supplier relationship, Winokur
Decl. ¶ 34 (emphasis added); see also id. ¶ 37 (similar issues with German
manufacturer of the cPod whereby “delay . . . could constitute a substantial breach of
contract” leading the “German manufacturer [to] likely sever its relationship with
CannaKorp” if the CannaCloud launch is “substantially or indefinitely delayed.”)
6 In contrast to the ambiguous language used in Mr. Winokur’s declarations, this court
has found affidavits to be persuasive when they represent the harm with more certainty
and specificity. See CPC Int’l, 19 CIT at 985–86, 896 F. Supp. at 1247–48 (reviewing
cases). For example, in American Frozen Food Institute, plaintiffs proffered affidavit
evidence that “they will lose substantial sums of money from the destruction of
stockpiled non-complying labelling”; “that its costs to destroy labels and its printing costs
to change labels would be in excess of $900,000”; that “labelling redesign [is] projected
at over $9 million”; and that “it would be necessary to re-engineer its inventory
management process to . . . to ensure that the various labels will correctly reflect the
countries of origin for [its product].” Am. Frozen Food Inst. 18 CIT at 570, 855 F. Supp.
at 393-94 (emphasis added). In Nat’l Juice Products, plaintiffs offered several affidavits
by representatives of third party supply and processing companies detailing challenges
to complying with Customs’ ruling, such as their inability to timely “provide the
necessary labels and cans,” preventing the fulfillment of customer orders, and the
“substantial” costs to be incurred in preparing new labels and packaging. Nat’l Juice
Prods., 10 CIT at 54, 628 F. Supp. at 985. Plaintiffs also provided evidence
demonstrating their need to warehouse or destroy its current inventory of labels. Id. at
54, 628 F. Supp. at 985.
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(emphasis added). Plaintiff’s statements are unsupported by documentary proof, such
as copies of contracts showing breach and damages clauses. Additionally, the
uncertainty of Mr. Winokur’s assertions of harm are underlined by his assertion that “[i]n
light of the fact that CBP’s decision has delayed launch of the CannaCloud indefinitely,
CannaKorp faces a potential claim for damages . . . and will likely lose its supplier
relationship.” Id. ¶ 34 (emphasis added).
Mr. Winokur is similarly unclear about the nature of the potential harm to
CannaKorp’s manufacturing relationships, speculating that “[t]he tools and other assets
. . . likely cannot be transferred to a new manufacturer.” Id. ¶ at 35; see also id. ¶ 37
(speculating that “the tools and other assets that the German company developed for
the cPod’s production likely cannot be transferred to a new manufacturer”) (emphasis
added). Mr. Winokur further speculates that “it is very likely that [CannaKorp’s
manufacturing] partners will claim that we are in substantial breach of our partnership
agreements because production orders fell far short of expectations,” and that “they
may take [legal action] for such a breach” and “dismantle [] customized CannaCloud
assembly lines and retrain their personnel.” Suppl. Winokur Decl. ¶ 10. Again, Mr.
Winokur’s declarations are speculative and conditional, lacking specific details of key
contract terms and the ownership of intellectual property and engineering design(s)
presumably developed in conjunction with manufacturing partners and with
CannaKorp’s financial input. See, e.g., Winokur Decl. ¶ 8 (noting sums spent by
CannaKorp in “design, development and production”).
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Finally, Plaintiff makes vague and unsupported claims regarding potential loss of
employees. See id. ¶ 38 (“Without the revenue and additional capital that will result
from taking the CannaCloud to market, CannaKorp will not be in a financial position to
continue retaining the services of these expert employees.”); Suppl. Winokur Decl. ¶ 8
(“CannaKorp has enough cash to operate until October and would be forced to
downsize its operations and terminate key employees to remain afloat until then.”).
Although Mr. Winokur expresses concern that CannaKorp’s key employees “are in such
demand that they are likely to be hired immediately by another company,” Winokur
Decl. ¶ 38, his statements do not shed light on whether CannaKorp has entered into
non-compete agreements with its key staff, or why the possibility that they may leave
the company to work for another company, even a competitor, is something other than
the normal course of business in which highly skilled employees may seek more
lucrative or rewarding employment.
Taken together, Mr. Winokur’s conclusory, at times vague, and unsupported
statements do not provide sufficient proof of business disruption to satisfy Plaintiff’s
burden by clear and convincing evidence.
(ii) Financial Loss
This court has found irrecoverable financial losses to constitute harm when
allegations of such losses are supported by clear and convincing evidence. See Nat’l
Juice Prods., 10 CIT at 54-57, 628 F. Supp. at 984-87 (Plaintiff provided affidavits from
“a sampling of processors” estimating the substantial cost of new labels and packaging).
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Here, Plaintiff’s allegations of imminent financial loss are vague, at times contradictory,
and unsupported.
Mr. Winokur estimates that CannaKorp faces financial losses of approximately
$14.8 million based on the, now delayed, July 2017 launch date and its expectation that
49,700 units would be sold within a year of launch. Winokur Decl. ¶ 20. In contrast, in
the supplemental declaration he claims that “by the end of 2017, CannaKorp had
expected to distribute nearly 4,000 CannaClouds in the United States.” Suppl. Winokur
Decl. ¶ 9. Plaintiff provides no documentation to support its estimated sales and
revenue, and, crucially, does not explain how (or why) it expected to sell only 4,000
CannaClouds in the six month period following its July 2017 launch, but in the six to
twelve month period thereafter it expected to sell more than twelve times that number.
Plaintiff characterizes Defendant’s argument that “objective” evidence is needed to
support Mr. Winokur’s assertions as an argument requiring “independent, third-party”
evidence. Pl.’s Resp. at 3; see also, e.g., Def.’s Resp. at 16. To the contrary,
CannaKorp’s own market research and business plans showing some rational basis for
its sales and revenue projections would go a long way to support Plaintiff’s allegations
of financial harm. As it is, the court cannot evaluate the reasonableness of Plaintiff’s
assertions or expectations based solely on the statements in Mr. Winokur’s
declarations.
Plaintiff also makes contradictory assertions regarding the degree to which
Customs’ ruling impacts its ability to obtain additional funding. See Winokur Decl. ¶ 20
(Customs’ ruling “seriously threatens CannaKorp’s ability to obtain additional funding . .
Court No. 17-00092 Page 16
. [and] additional investment will be difficult, if not impossible, to obtain in light of CBP’s
decision”) (emphasis added); Suppl. Winokur Decl. ¶ 6 (Customs’ ruling “has
significantly stymied CannaKorp’s ability to attract additional investors,” and “those
investors see CBP’s decision . . . as the primary roadblock to investment”) (emphasis
added). Mr. Winokur’s failure to identify the other potential roadblocks prevents the
court from evaluating the veracity of CannaKorp’s claim. Moreover, CannaKorp’s
assertions of difficulty in obtaining new investment are contradicted by Mr. Winokur’s
admission that the company successfully raised $500,000 in additional capital in the six
weeks following Mr. Winokur’s initial declaration, see Suppl. Winokur Decl. ¶ 8, that
additional fundraising would be “difficult, if not impossible,” Winokur Decl. ¶ 20.
In sum, like Plaintiff’s statements on business disruption, Plaintiff’s allegations of
financial harm are unsupported and, at times, contradictory. Plaintiff’s proofs are
insufficient and unpersuasive in light of the clear and convincing burden of proof
standard it faces.
(iii) Reputational Harm
The court considers the loss of customers when reviewing claims of harm when
such loss is sufficiently nonspeculative. Compare, e.g., Lois Jeans & Jackets, U.S.A.,
Inc. v. United States, 5 CIT 238, 242, 566 F. Supp. 1523, 1527 (1983) (established
importer and distributor of wearing apparel presented sufficient evidence in the form of
an affidavit and oral testimony during a hearing showing injury to reputation as a reliable
supplier), with, e.g., Techsnabexport, 16 CIT at 428, 795 F. Supp. at 437 (affidavits
averring challenges to the establishment of long term business relationships were “too
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speculative to constitute irreparable harm”). It also remains incumbent upon the movant
to sufficiently document the alleged harm. See Arbor Foods, Inc. v. United States, 8
CIT 355, 359, 600 F. Supp. 217, 220 (1984) (declining to find harm when nature and
scale of lost profits was “unknown,” and loss of benefits from past marketing and
damage to reputation was speculative) (citations omitted). To the extent that
reputational harm may be considered economic harm, this court has customarily found
such non-measurable harms to rise to this level only when the moving party is able to
show a clear detriment; for example, an existing customer base (and its impending
loss). See Heartland, 23 CIT at 758-59 & n. 8, 74 F. Supp. 2d at 1331 & n. 8 (finding
irreparable harm when party stood to lose its three main customers and had
documented this through an affidavit and “letters from the customers indicating their
plans to take their business elsewhere”).
Here, Mr. Winokur’s affidavits fail to rise above speculation. Mr. Winokur avers
that Customs’ ruling prevents CannaKorp from establishing consumer goodwill as a
result of “first-mover advantage,” Winokur Decl. ¶ 29, which it bases on its having
generated “over 20 million views and 50,000 comments, the vast majority of which were
positive and supportive” in response to a Facebook video, id. ¶ 30. Mr. Winokur also
makes repeated reference to potential competitors in the market and the consequent
loss of “market potential” and “first-mover advantage” that allegedly results from CBP’s
ruling. Id. ¶¶ 22-30. Mr. Winokur estimates the monetary value of “first-mover
advantage” in 2017 at $2 million. Id. ¶ 29. The court simply notes that Facebook views
and comments are an insufficient measure of consumer goodwill and Plaintiff has
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submitted no evidence showing it has an established customer base or distribution
arrangements. As such, the harms alleged remain unknown and speculative.
Similarly, CannaKorp provides no documentation or studies explaining or
supporting its monetary estimate of its so-called first-mover advantage, particularly in
light of Mr. Winokur’s assertion that the company had expected to distribute 4,000
CannaClouds by the end of 2017 (suggesting that he valued the first-mover advantage
at $500 per unit). Suppl. Winokur Decl. ¶ 9. Mr. Winokur’s statements, taken together,
fail to provide clear and convincing evidence of the alleged reputational harm that
CannaKorp would suffer if it cannot challenge Customs’ pre-importation ruling.
CannaKorp provides no documents or reasoning to support its claims of estimated
monetary losses. Although economic loss need not be precisely measured, the court
must have some ability to evaluate the magnitude and imminence of the loss in order to
consider the likelihood of harm. CannaKorp has failed to provide the court with
evidence that would enable such an assessment. As a result, CannaKorp has failed to
meet its burden to provide clear and convincing evidence of harm.
B. Whether CannaKorp’s Alleged Harms are Irreparable
CannaKorp argues that its alleged harms are irreparable because the
government’s sovereign immunity “makes potential monetary damages irrecoverable.”
Pl.’s Resp. at 7. Defendant contends that CannaKorp has failed to carry its burden in
proving the economic harms it alleges, Def.’s Reply at 3-4, and that its only other harms
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amount to “litigating costs and litigation delay” generally associated with challenges to
pre-importation rulings, id. at 4-5.
“[T]he fact that economic losses may be unrecoverable does not absolve the
movant from its considerable burden’ of proving that those losses are ‘certain, great and
actual.” Nat’l Min. Ass'n, 768 F. Supp. 2d at 52 (internal quotation marks, citation, and
emphasis omitted). Plaintiff has to establish the harm before the court can address the
question of recoverability. As discussed above, Plaintiff has failed to establish by clear
and convincing evidence that its business would suffer harm. As such, the court need
not address whether any of that harm would be recoverable. 7
To the extent that Plaintiff includes the time and financial costs of litigation in its
list of harms, these costs are part and parcel of doing business and do not constitute
irreparable harm sufficient to justify jurisdiction pursuant to subsection 1581(h).
Renegotiation Bd. v. Bannercraft Clothing Co., Inc., 415 U.S. 1, 24 (1974) (“Mere
litigation expense, even substantial and unrecoupable cost, does not constitute
irreparable injury.”); Fed. Trade Comm’n v. Standard Oil Co. of California, 449 U.S. 232,
244 (1980) (where plaintiff had argued “that the expense and disruption of defending
itself in protracted adjudicatory proceedings constitute[d] irreparable harm,” the Court
7 In addition to the arguments addressed above, Defendant also argued that Plaintiff’s
alleged harms were self-inflicted because of the time-lag between when it filed its patent
application (2014) and when it requested the pre-importation ruling from Customs
(2016), and because Plaintiff did not “account for the possibility of litigation delay when
developing its business model and negotiating its contracts.” Def.’s Reply at 6-7; Def.’s
Mot. at 13-16; see also Pl.’s Resp. at 17-21. Because the court finds that Plaintiff has
failed to establish irreparable harm in the first instance, the court need not reach this
additional argument.
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ruled that, even though “the burden of defending this proceeding will be substantial . . .
[,] ‘the expense and annoyance of litigation is ‘part of the social burden of living under
government’’”) (quoting Petroleum Exploration, Inc. v. Public Service Comm'n, 304 U.S.
209, 222 (1938)).
CONCLUSION AND ORDER
The court finds that Plaintiff has failed to establish that it would be irreparably
harmed if it cannot obtain pre-importation judicial review as required by subsection
1581(h). Although Plaintiff presents the court with claims of business disruption,
financial loss, and reputational harm, the evidence it presents in support of its claims
ranges from vague, to inconsistent, to contradictory. Thus, Plaintiff has failed to carry
its burden to show by clear and convincing evidence that it faces the harms it alleges.
Because Plaintiff fails to establish the harms, the court need not address its arguments
regarding the irreparability of those harms. Similarly, the court does not reach
Defendant’s arguments regarding Plaintiff’s failure to state a claim for which the court
may grant relief. See Def.’s Mot. at 22-24; Def.’s Reply at 14-16; Pl.’s Resp. at 23-25.
Therefore, upon consideration of Defendant’s motion to dismiss pursuant to
USCIT Rules 12(b)(1) and 12(b)(6), the response and reply thereto, the complaint and
its exhibits, and upon due deliberation, it is hereby
ORDERED that Defendant’s motion to dismiss (ECF No. 17) pursuant to USCIT
Rule 12(b)(1) is GRANTED; it is further
ORDERED that Defendant’s motion to dismiss pursuant to USCIT Rule 12(b)(6)
is DENIED AS MOOT; it is further
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ORDERED that Plaintiff’s motion for an expedited briefing schedule (ECF No. 5)
is DENIED AS MOOT; it is further
ORDERED that Plaintiff’s motion for leave to file a reply in support of its motion
for an expedited briefing schedule (ECF No. 15) is DENIED AS MOOT; and it is further
ORDERED that this action is dismissed. Judgment will be entered accordingly.
/s/ Mark A. Barnett
Mark A. Barnett, Judge
Dated: July 11, 2017
New York, New York
CannaKorp, Inc. v. United States
Court: United States Court of International Trade
Date filed: 2017-07-11
Citations: 2017 CIT 83, 234 F. Supp. 3d 1345
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