How corporate litigants can unlock value from tariff reimbursement claims

 

US companies have valuable and actionable assets tied up in ongoing litigation challenging tariffs on imported goods. Legal finance can free up that value through a monetization of tariff resolution claims and alleviate pressure on their balance sheets.


Over the last several years, corporations across the US have experienced the knock-on effects of increased tariffs. Given the immediate impact of tariffs on a corporate balance sheet, tariff reimbursements are a well-known asset to companies in a variety of industries. Corporations routinely challenge tariffs in two ways: (1) By arguing that a certain duty does not apply in order to secure a partial refund of the total tariff paid, and (2) by questioning the legality of a tariff to secure a full refund.

While tariff payments have an immediate impact on business operations and cash flow, resolution of the underlying legal challenges and their ultimate reimbursement can take, on average, several years. Duration is a primary pressure point, because although tariffs are paid at the point of entry—when goods are imported into the US—the responsible agency, typically the Commerce Department, cannot process any reimbursements until all tariff challenges have been fully adjudicated. In practice, this means that even if a corporation is successful on most of a reimbursement challenge, it will not see any refunds until all tariff issues are resolved for that particular entry. The resolution may require administrative proceedings, district court litigation and even an appeal to the Federal Circuit. All told, the lag between tariff assessment and tariff reimbursement could be well north of four to five years.

Companies affected by increased tariffs need a way to de-risk the lengthy reimbursement process, and legal finance is an ideal tool for corporates seeking to accelerate the value of tariff reimbursement claims. One solution is a monetization, in which the company receives some percentage of the total tariff reimbursement claim upfront. This acceleration of the expected reimbursement allows a company to realize the asset value of the associated challenge and to offset both the merits and duration risk to a legal finance partner. The proceeds from a monetization can be used for any business purpose, including capital projects, general cash flow or litigation fees and expenses.

Case study: Duties reimbursement

Companies face long and sometimes circuitous administrative proceedings when challenging duties paid on certain goods at the point of entry. As one example, a corporation faced customs duties from countervailing and anti-dumping assessments. Those assessments amounted to an additional 30%–40% increase in cost on the imported goods, a large portion of which was ultimately reversed during administrative challenges. Notwithstanding this happy outcome, the company was still forced to sit on the favorable ruling for several years while other tariff challenges on the same imports unfolded.

In such a scenario, legal finance affords the company an opportunity to realize that value and short-circuit the substantial delay between the favorable ruling and the ultimate reimbursement. In this example, the primary merits risk is rather low as a fair amount of deference is accorded to the evidentiary rulings of an administrative agency (or district court). The cost of capital is priced based on that risk, making it possible for a company to receive a sizable monetization.

Legal finance de-risks tariff reimbursements

Legal finance provides a means for companies to manage both merits and duration risk associated with tariff reimbursement litigation. A monetization can be attractive in myriad ways—for example, a company can monetize a portion of tariffs already paid on a non-recourse basis and use the capital for other projects. Additionally, a firm with a diversified portfolio of tariff-related cases undertaken on a contingent basis can manage its risk and offset the investment on expenses relating to the litigation while also accelerating a portion of the firm’s expected fee recovery.

Finally, given the attendant merits risks associated with some current tariff litigation, companies can reduce the cost of capital to monetize these claims by identifying other uncorrelated claims, for example other types of duty reimbursement claims, or non-trade claims, i.e., garden variety commercial claims or opt-out claims in class action cases. While monetizing a single type of claim may result in higher cost of capital, a portfolio structure allows a corporation to borrow capital at a reduced price based on the diversified nature of the claims across all the cases. A legal finance provider can partner with a company to provide the best capital profile and cost based on that company’s existing docket of affirmative litigation.

 


Gabriela Bersuder is a Vice President with responsibility for analyzing the risk profile of cases Burford considers for financing and providing oversight to existing investments. Previously, she was a litigator at Patterson Belknap Webb & Tyler. She also clerked for the Honorable John G. Koeltl (Southern District of New York) and Honorable Christopher F. Droney (Second Circuit).