As IEEPA CAPE refunds have become widely available, Importers of Record have increasingly become the target of demands from their customers who paid higher market prices. These demands have come from both distributors and customers, sometimes with competing claims for the same refund dollars. In some instances, consumer class actions were filed against retailers, and in order instances demand letters have been issued between commercial parties following on CAPE refunds.
Most supply agreements executed before 2025 do not address how to address the issue of a tariff refund where the tariff was later held to have been unlawful. Contracts that allocate tariff cost typically state who pays the duty, through delivery terms such as DDP or DAP or through a tariff surcharge or price adjustment clause, and stop there.
When we look over various commercial agreements, we observe that three fact patterns recurring: (1) the tariff was separately stated on invoices as a “surcharge”; (2) the price was tied to an adjustable formula that moved with duty rates; or (3) the tariff cost was absorbed into a list price with no itemization whatsoever. Claims by end consumers who bought at posted retail prices fall in the third category and depend on evidence of the tariff component of the price.
Defendants in several of the early consumer suits have moved to dismiss on standing and ripeness grounds where no refund had yet been paid to the defendant; however, by this time, most companies seriously seeking refunds have already obtained them.
Many companies ask about whether force majeure clauses and the commercial impracticability rule of UCC section 2-615 might relieve a party from performing when a supervening event prevents performance. Some federal appellate courts have treated government interference, including informal government pressure that was never reduced to a formal order, as a qualifying event where it actually stopped performance. For example, Harriscom Svenska, AB v. Harris Corp., 3 F.3d 576 (2d Cir. 1993); Eastern Air Lines, Inc. v. McDonnell Douglas Corp., 532 F.2d 957 (5th Cir. 1976). However, some courts have refused to extend the same treatment to tariffs and trade measures that raised the cost of performance without preventing it. For example, Kyocera Corp. v. Hemlock Semiconductor, LLC, 313 Mich. App. 437, 886 N.W.2d 445 (2015). UCC section 2-615(a) stands for the proposition that one may excuse a seller whose performance is made impracticable by good faith compliance with a governmental regulation or order “whether or not it later proves to be invalid.” That provision speaks to a government measure being struck down after the fact, however, it speaks only to breach exposure, and to not the ownership of money collected under the invalid measure. In the IEEPA refund disputes west still lack direct precedents which would decide who any such the contracts would actually be adjudicated.
The claims actually being pleaded are often based on a breach of contract theory, where a clause expressly passed a duty through or promised an adjustment if duties changed; or on unjust enrichment, on the theory that the importer of record has been compensated twice for the same cost; and/or a state consumer protection statute, on the theory that a tariff surcharge described as a pass through was in substance a price increase. Each of these theories requires the claimant to trace the tariff through the price. Some federal antitrust law have addressed the same tracing problems, e.g., in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), and Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), where the Supreme Court declined to permit a “pass on” defense or an “indirect purchaser” recovery because apportioning an overcharge along a distribution chain was found to be unworkable. Again, it is impossible to know how the issue would be adjudicated in the IEEPA context; much could depend on specific facts relative to how the price increases were passed on.
One of the closer precedents involves the situation where a retroactively repealed federal tax (rather than a tariff) was in dispute. In Javor v. State Board of Equalization, 12 Cal.3d 790 (1974), Congress had retroactively repealed the federal manufacturer’s excise tax on new motor vehicles, and California retailers (not the ultimate consumers) held the right to recover those resulting excess sales tax reimbursements from California state. The California Supreme Court then permitted a consumer class action suit against the retailers. The retailers were compelled to file refund claims and to join the Board of Equalization so that refunds would be paid into court for a distribution. Later decisions confined the decision in Javor to its unique circumstances. See, Littlejohn v. Costco Wholesale Corp. (Cal. Ct. App. 2018); McClain v. Sav-On Drugs (Cal. 2019). The California Revenue and Taxation Code section 6901.5 separately requires a retailer who has collected excess sales tax reimbursement to return it to the customer or remit it to the state.
It’s important to note that the IEEPA tariff refunds paid on reliquidation have been reimbursed with the interest provided for under 19 U.S.C. section 1505(c) from the date of the tariff deposits, and as a result, some plaintiffs have begun claiming that interest component as well.
Given that the IEEPA has been replaced by other tariff regimes (which also face litigation), it is important risk component for the future that importers scrutinize the contract terms, including POs received by U.S. purchasers. Some clauses now in circulation have required importers of record to pursue available refunds and to remit an agreed share to the party that bore the duty. Some purchasers are seeking a share of refunds where the duty was never separately reimbursed but is asserted to have been reflected in the price. In such instances, it may be important that the Importer to seek counsel to disclaim and/or modify those contract terms (a process known as “the battle of the forms”).