Author: Heather Holland

Importers Begin Receiving CAPE Refund Payments; CIT Says Section 122 Tariffs Illegal

By John H. Kester

Importers who paid tariffs illegally based in the International Emergency Economic Powers Act (“IEEPA”) and whose entries were eligible for the first phase of Customs and Border Protection’s (“CBP’s”) Consolidated Administration and Processing of Entries (“CAPE”) tool have begun receiving refund payments. Last month, in an April 28, 2026 Order in Euro-Notions Florida, Inc. Senior Judge Richard K. Eaton had telegraphed that CBP “anticipate[d] issuing the first refund on or about May 11, 2026” (yesterday).

These payments will come as welcome news to importers, who have waited months to recover the funds even after the Supreme Court ruled IEEPA did not give the President authority to tariff. Given CAPE’s Phase 1 parameters limiting filings to unliquidated entries or those that have been liquidated for 80 days or fewer, these payments also will leave some of those same importers eager for expansion of CAPE’s parameters to encompass other entries on which illegal tariffs were imposed. GKG Law will monitor whether and when that occurs.

Although updates regarding CAPE have been issued via Euro-Notions Florida, Inc., which took over for Atmus Filtration, Inc. as the lead tariff refund case, development of the CAPE tool reflects the aggregate effect of thousands of complaints filed by importers with the Court of International Trade (“CIT”), including numerous such importers represented by GKG Law. Speaking to government attorney Claudia Burke in a hearing in Atmus Filtration on March 4, 2026, the Senior Judge stated, “We have 2,000 cases…if I’m assigned those 2,000 cases, and if I lift the stay, you [the government] are going to have to answer 2,000 cases within 60 days, and I am going to have to hear 2,000 cases. We don’t want that to be the result.”

As for the stopgap 10-percent tariff the Trump Administration implemented following the Supreme Court’s IEEPA tariff ruling, the CIT in a Judgment in The State of Oregon, et al., v. United States, et al. / Burlap and Barrel, Inc., et al. v. United States, et al. on May 7, 2026 ordered that that tariff too was illegal. The “global tariff,” also referred to as a “temporary import surcharge,” had been implemented ostensibly under Section 122 of the Trade Act of 1974 and claiming that the United States has a “large and serious balance-of-payments deficit.” The related Opinion and Order stated, “Nowhere does Proclamation No. 11012 [(pursuant to which the global tariff was imposed)] identify balance-of-payments deficits within the meaning of Section 122 as it was enacted in 1974.” The Department of Justice filed a notice of appeal from the Opinion and Judgment on the following day, May 8, 2026.

John H. Kester is a Customs attorney with GKG Law. He additionally passed Customs and Border Protection’s rigorous Customs Broker License Exam and his application for a Customs Broker License is pending. He is reachable at jkester@gkglaw.com.

Brendan Collins and Oliver M. Krischik, Principals with GKG Law, have participated in the firm’s numerous filings in opposition to the Section 301 and IEEPA tariffs. They are reachable at bcollins@gkglaw.com and okrischik@gkglaw.com respectively.

 

 

Refund Uncertainty Persists as IEEPA Tariff Refund Case is Dismissed

By John H. Kester

The Court of International Trade (“CIT”) on Wednesday, April 8, dismissed Atmus Filtration, Inc. v. United States, et al., the case through which the CIT purported to develop a refund process for importers who paid billions of dollars in tariffs unlawfully imposed by the Trump Administration. Importers seeking clarity as to whether and how any refund process will occur are now faced with persistent, if not greater, uncertainty, and it remains GKG Law’s position that the most conservative approach is for importers to file their own complaints for refund before the CIT.

Although dismissal in Atmus was sought by the plaintiff for unspecified reasons, the result is favorable to the government, which is no longer required to provide updates in that matter as to any refund process, and which likely has additional time to fashion an argument against refunds altogether. In the March 4 hearing in Atmus, the government’s attorney stated it had then not yet directed that entries be liquidated without IEEPA duties because “the government is waiting until we have finalized our position on refunds.” The fact that CBP in Atmus subsequently described progress toward a refund tool did not mean the government ever broadly acquiesced to providing refund.

The Plaintiff in Atmus last month moved to combine other importers’ cases with the Atmus case, which Senior Judge Richard Eaton denied for unspecified reasons. According to the Plaintiff’s Motion, the government said it opposed so combining the cases because it had not had enough time to review and consider the proposal. However, it is possible the government simply had not finalized its strategy for how to fight refunds, and/or did not want one case deciding the fate of its arguments against refund for thousands of importers.

Many importers will have been unsatisfied with the Atmus case even prior to its dismissal, as the scope and immediate application of the Court’s Orders therein fluctuated, and as much of the action occurred in closed-door private meetings without including other importers seeking refund. That even that imperfect case is now dismissed as sought by the plaintiff should cause importers to question whether they are comfortable relying on another plaintiff to litigate their refund prospects.

GKG Law’s IEEPA tariff litigation team, which includes me, Brendan Collins, and Oliver M. Krischik, has already filed numerous complaints on behalf of individual importers, and we are prepared to continue to do so swiftly in the days ahead.

Please contact us if you have any questions or are interested in filing such a Complaint.

John H. Kester is a Customs attorney with GKG Law. He additionally passed Customs and Border Protection’s rigorous Customs Broker License Exam and his application for a Customs Broker License is pending. He is reachable at jkester@gkglaw.com.

Brendan Collins and Oliver M. Krischik, Principals with GKG Law, additionally participated in the firm’s numerous filings in opposition to the Section 301 tariffs implemented by President Trump’s first administration. They are reachable at bcollins@gkglaw.com and okrischik@gkglaw.com respectively.

The Iran Conflict Update: Global Shipping, Sanctions, and Governmental Relief

By Hannah F. Atkinson

Continued monitoring of the evolving conflict in the Middle East remains imperative for businesses. Since last week and our previous article, the scale of disruption has increased, especially for those in the supply chain, as three cargo ships were hit as recently as March 11^th. As early as this morning, Iran’s new supreme leader issued a statement that the country would continue to block the Strait of Hormuz. This update outlines the latest impacts on global shipping operations, the shifting sanctions landscape, and the limited relief measures the U.S. government has announced to date.

1. Maritime Rerouting & Energy-Related Surcharges

One expert estimates that rerouting shipments around the Cape of Good Hope can add 10-14 days to the trip and about $1 million extra in fuel per ship. Several vessel-operating common carriers, including CMA CGM & Maersk, have announced the intent to reroute shipments around the Cape.

Around a fifth of the world’s oil travels through the Strait of Hormuz. This morning, the IEA published its March 2026 Oil Market Report and stated that this war has caused “the largest supply disruption in the history of the global oil market.” Earlier this week, Maersk implemented an Emergency Bunker Surcharge to account for the global fuel disruptions. This surcharge will start on March 25^th—subject to Federal Maritime Commission’s approval—and may increase or decrease every 14 days. Hapag-Lloyd and MSC also announced similar surcharges.

Any change to a tariff by a common carrier requires at least 30 days between its publication and effective date, unless the Commission approves a special permission request to reduce this waiting period. Shippers may see surchargers quicker if the Commission grants special permission. But as recently as March 11, the Commission affirmed its commitment that “that rates, charges, and rules that common carriers have implemented as a result of commercial shipping in the Strait and neighboring waters do not violate the Shipping Act.”

Even with regulatory delays for new surcharges, businesses in the supply chain should consider examining their contracts, considering:

• Force majeure provisions that with prior notice, could excuse performance or allow rerouting of shipments: some companies have already started to declare force majeure on cargos; and
• Terms that speak to tariff responsibility, delay risk, and cost increases—keeping in mind the FMC’s regulations and its recent statement.

Companies should review these provisions closely, as their applicability will depend on each contract’s specific language.

 

2. Evolving Sanctions Require Diligence

As recently as late February, the Office of Foreign Assets Control (OFAC) sanctioned over 30 individuals, entities, and vessels as a part of “Treasury’s ongoing campaign of maximum pressure on Iran.” As the conflict in Iran continues, OFAC may impose more sanctions and businesses will have to remain vigilant during screening, as the Specially Designated Nationals (SDNs) list expands and contracts.

Generally, OFAC regulations prohibit all transactions or dealings by U.S. persons that involve any property or interests in property of sanctioned persons. OFAC violations can carry significant civil penalties and operate under a strict liability basis, so companies should take care in screening and seek guidance as Iran sanctions continue to evolve.

3. Limited Relief from the Government

U.S. International Development Finance Corporation (DFC) said it “will offer support to commercial shipping charterers, shipowners, and key maritime insurance providers to minimize market disruptions and help ensure the free flow of goods and capital.” As many in the transportation sector already know, war risk insurance premiums have surged by almost 300%. While the DFC has not released many details about its “Maritime Reinsurance” product, it has specified in two press releases that its $20 billion insurance “offering will apply only to vessels that meet eligibility criteria,” and “will focus on Hull & Machinery and Cargo.” So far, no eligibility criteria have been shared with the public, so it remains to be seen who will benefit from this DFC’s product.

Earlier in the conflict, President Trump signaled that the U.S. Navy could provide relief to vessels by escorting them through the Strait of Hormuz. However, as of March 11^th, the U.S. Navy has not escorted any vessels during this conflict, and military officials have suggested there are no memorialized plans for escorts at this time. Therefore, it will take time for this possible escort relief to materialize, if at all.

The risks and benefits of these potential opportunities from the U.S. government are unclear; however, please contact us should you have any questions.

GKG Law, P.C., helped businesses during prior supply chain disruptions: COVID, port strikes, and the Red Sea attacks, and can help businesses analyze contracts, provide sanction guidance, and provide other support.

 

 

Judge Orders CBP to Report its Progress to Developing Refund Process by Thursday

By John H. Kester

The Court of International Trade (“CIT”) on Friday ordered that the government file a report on the progress Customs and Border Protection (“CBP”) has made toward developing a refund process for IEEPA duties, with interest, by 2PM EDT on Thursday, March 12. That Friday Order follows another Order (the “Reaccounting Order”) last week in same case, Atmus Filtration, Inc. v. United States, et al., which had required that:

1. for entries subject to IEEPA tariffs imposed by the Executive Orders considered by the Supreme Court in Learning Resources, Inc. v. Trump, that have not liquidated, CBP must liquidate those entries “without regard to” the IEEPA duties; and,

1. for entries subject to IEEPA tariffs imposed by such Executive Orders that have liquidated, but for which the liquidation is not final, CBP must reliquidate those entries, “without regard to” the IEEPA duties.

Senior Judge Richard Eaton’s Order was not limited to entries in the Atmus case, but rather applied to all entries described above. Notably, the above limitation to Executive Orders considered by SCOTUS in Learning was added in an Amended version of the Order on March 5. Although Learning resulted in a sweeping ruling that IEEPA did not authorize the President to tariff, the ruling did not reference, for example, the tariff imposed by Executive Order 14323 on Brazilian imports and other E.O.s, meaning Atmus has left importers affected by those tariffs in an uncertain position.

Moreover, although the Atmus Court ordered such reaccounting, it stopped short of requiring refunds, and even the reaccounting Order was suspended on Friday to caveat that the Court is not requiring immediate reaccounting. Also on Friday, a CBP representative filed a Declaration with the Court stating that CBP was incapable of immediate compliance, but that CBP was “confident” that it can make changes to its system to address removing the unlawful tariffs and was “making all possible efforts to have this new… functionality ready for use in 45 days.”

Even if CBP can accomplish those changes to its system within that 45-day period that does not mean refunds will occur within that timeline. Indeed, it is unclear whether CBP’s filing was merely describing how a refund process would work or whether it signaled that CBP was acquiescing to refunding the unlawfully collected tariffs.   As noted above, the government is required to file a progress report regarding how refunds would be handled by March 12.

Recent History of Atmus:

Wednesday, March 4:

The Hearing:

• In a hearing in Atmus, the Senior Judge made plain the Court’s overarching posture in favor of refund: “Right now I want to make it clear to the Customs Service that they have to refund any money that was unlawfully collected,” he said.
• The government appeared to be caught off-guard by the Court’s intention to take broad action, and requested from the Court more time to brief the merits of its case. “There aren’t any merits,” the Senior Judge said.
• Although the government asserted at the Wednesday hearing that entries would require manual review, the Senior Judge said, “we live in an age of computers….”
• The Senior Judge announced that he would require a conference Friday to discuss how refunds would be accomplished for “at least some of these entries.” He noted that all IEEPA cases were to be assigned to him personally and that he does not want to hear all of the cases filed.

The Order:

• Following the Hearing, the Judge issued an Order requiring reaccounting of entries with IEEPA duties imposed, which stopped short of explicitly requiring refund but which appeared to be an effort to start a refund process in some form.
• The Court took pains to assert that the Order would apply to all importers of record whose entries had IEEPA tariffs imposed, rather than merely to the Atmus “All importers of record whose entries were subject to IEEPA duties are entitled to the benefit of the Learning Resources decision,” it said.
• The Order did not state how entries whose liquidation is final would be treated.

Thursday, March 5:

              The Amended Order:

• The Senior Judge amended and superseded his Wednesday order to add language limiting the reaccounting to those IEEPA tariffs imposed by Executive Orders considered by the Supreme Court (“SCOTUS”) in Learning.
• Application of the Order only to Executive Orders considered by SCOTUS in that case means that the Order does not apply to some IEEPA tariffs including those imposed by certain Executive Orders related to Brazil, Cuba, Iran, Russia, and Venezuelan oil.

Friday, March 6:

              The Declaration:

• The government filed a Declaration by a CBP representative, which asserted there are numerous limitations in the Automated Commercial Environment (“ACE”), the Customs system that handles entries and associated duties, and that refund processing would take “4,431,161 man hours” (approximately 506 years) using the existing tools.
• It nonetheless stated that CBP would endeavor to have changes to the system ready in 45 days.

                      The Orders:

• In addition to the aforementioned Order setting a March 12 progress report deadline, and citing the aforementioned Declaration, the Court stated that the March 5 Order was “suspended to the extent that it directs immediate compliance.” Put differently, the reaccounting must take place, but on an indefinite timeline.

Next Steps for Importers:

The CIT’s posture in favor of refunding importers has never been clearer, and it appears that its desire is for such process to occur without requiring aggrieved importers to file complaints with the Court. However, the Friday conference in Atmus was private, and the government’s public posture independent of today’s Declaration has suggested it is not eager to facilitate an easy and immediate refund process.

It remains to be seen whether the government will appeal in Atmus, taking the refund issue to higher Court(s) in similar fashion to how the illegality of the tariffs was adjudicated. It also remains to be seen what process, if any, will be available to importers affected by IEEPA-based tariffs that SCOTUS did not consider in Learning, and importers whose liquidated entries are final.

Although there is reason to believe that the CIT favors refund without the need to file a complaint, at least for many IEEPA-implicated entries, there also is good reason to expect the government to resist. With that in mind, GKG Law’s position remains that the most conservative approach is to file a Complaint for refund before the CIT.

GKG Law’s IEEPA tariff litigation team, which includes me, Brendan Collins, and Oliver M. Krischik, has already filed numerous such complaints prior to the SCOTUS ruling, and is prepared to continue to do so swiftly in the days ahead.

Please contact us if you have any questions or are interested in filing such a Complaint.

John H. Kester is a Customs attorney with GKG Law. He additionally passed Customs and Border Protection’s rigorous Customs Broker License Exam and his application for a Customs Broker License is pending. He is reachable at jkester@gkglaw.com.

Brendan Collins and Oliver M. Krischik, Principals with GKG Law, additionally participated in the firm’s numerous filings in opposition to the Section 301 tariffs implemented by President Trump’s first administration. They are reachable at bcollins@gkglaw.com and okrischik@gkglaw.com respectively.

 

Federal Circuit Mandates Court of International Trade Take Action on Tariff Case

By John H. Kester

The U.S. Court of Appeals for the Federal Circuit in V.O.S. Selections, Inc. v. Trump on Monday issued a mandate returning the case to the Court of International Trade to take further action. The order denied a court filing made by the government on Friday, February 27, in which it argued that Court should not mandate that the CIT take such action, and in the alternative, that no such mandate be issued for four months.

The government had argued that the extended time period would “allow the political branches an opportunity to consider options,” suggesting Congressional action to usurp or supplement the judiciary’s role with regard to refunds. Its filing responded to a Motion by plaintiffs that had moved that the mandate be issued immediately, and which the government characterized as “ill-conceived.” The government further stated that plaintiffs had an “apparent desire to be the center of attention,” “a…bare desire to be paid immediately,” and that the hundreds of importers who have filed related claims for refund before the CIT were not reason to immediately issue the mandate. It stated also that “the IEEPA tariffs have been replaced by vigorous new tariffs.”

Plaintiffs had argued that the mandate would “facilitate the prompt and equitable disposition of both this case and the over 900 other suits challenging the tariffs that are currently pending before the CIT.” It emphasized that the government previously stipulated in the matter that it would issue refunds, with interest, provided SCOTUS ruled the tariffs unlawful, and that it had stated refunds also would be available to other aggrieved plaintiffs, outside the case.

“Plaintiffs’ entitlement to refunds is clear and… every day they are forced to operate without them inflicts harm on their businesses,” the Motion read. The Court appears to have agreed.

Brief Judicial History of V.O.S. Selections, Inc.:

Before V.O.S. Selections, Inc. advanced to the Supreme Court, plaintiffs in the case were victorious in the CIT, which ruled the tariffs unlawful. The Federal Circuit later affirmed the CIT’s decision that the tariffs were unlawful, but the CIT proceeding was stalled pending the mandate, which itself would not be issued until the Supreme Court ruled. On Friday, February 20, the Supreme Court ruled the tariffs were unlawful.

With a definitive SCOTUS ruling in hand, plaintiffs in the case filed separate Motions in both the Federal Circuit and the CIT, on Tuesday, February 24. In addition to the above-described Federal Circuit filing regarding the mandate, plaintiffs filing with the CIT sought that the CIT begin the refund process once they receive such mandate. The government’s response to plaintiff’s CIT filing is due Tuesday, March 17, and may give further indication regarding its posture as to refunds.

Next Steps for Importers:

The government’s latest filing builds on the statements of President Trump and Treasury Scott Bessent suggesting the Administration does not intend to facilitate an easy refund process with any immediacy. The Federal Circuit, however, has resisted government attempts to delay the Court process in the V.O.S. case.

With that in mind, GKG Law reiterates its December 2025 analysis that importers seeking the most conservative approach and greatest insurance of obtaining IEEPA tariff refunds would be prudent to file a claim for refund with the Court of International Trade before their entries’ liquidation, Customs and Border Protection’s (“CBP’s”) final computation or ascertainment of duties on entries for consumption, which typically occurs at or around 314 days after entry.

GKG Law’s IEEPA tariff litigation team, which includes me, Brendan Collins, and Oliver M. Krischik, has already filed numerous such complaints prior to the SCOTUS ruling, and is prepared to continue to do so swiftly in the days ahead.

Please contact us if you have any questions or are interested in filing such a Complaint.

John H. Kester is a Customs attorney with GKG Law. He additionally passed Customs and Border Protection’s rigorous Customs Broker License Exam and his application for a Customs Broker License is pending. He is reachable at jkester@gkglaw.com.

Brendan Collins and Oliver M. Krischik, Principals with GKG Law, additionally participated in the firm’s numerous filings in opposition to the Section 301 tariffs implemented by President Trump’s first administration. They are reachable at bcollins@gkglaw.com and okrischik@gkglaw.com respectively.

Carriers Impose Surcharges as Iran Conflict Disrupts Shipping Routes

 

By Oliver M. Krischik and John H. Kester

 

Over the course of the weekend, the U.S. and Israel launched strikes against Iran-related targets, and Iran responded by striking against U.S.- and Israel-related targets in the region. The armed conflict and ongoing military actions have unsurprisingly caused disruption to shipping routes as commercial vessels come under attack and ocean carriers respond to the situation.

 

Specifically, amid strikes in at least eleven countries: Iran, Israel, Bahrain, Cyprus, Iraq, Kuwait, Lebanon, Qatar, Saudi Arabia, Syria, and United Arab Emirates, at least five of the largest vessel-operating common carriers (“VOCCs”) have announced they have suspended nearby service and/or had imposed surcharges tied thereto.  While there is not much certainty with regard to the ongoing hostilities, it is possible that the hostilities may continue for several weeks or months.

 

Ocean carriers are responding differently to the situation at the present time, and the actions will have consequences for: (i) acceptance of new bookings; (ii) routing, delivery, and costs for shipments in transit; and (iii) pricing for new bookings.  As we saw with the Red Sea surcharges in late 2023 and early 2024, some ocean carrier actions may not be compliant with the Shipping Act of 1984 (as amended) and the Federal Maritime Commission’s (“FMC’s”) regulations.  Nonetheless, Ocean Transportation Intermediaries (“OTIs”) would be prudent to (a) monitor the actions taken as applicable to ongoing shipments; (b) inform customers of the ongoing situation and the OTI’s position in that regard; (c) take note of new surcharges and routing rules applicable to new bookings with various ocean carriers; and (d) take the additional tangible steps described in greater detail below (e.g., reviewing tariff and contractual force majeure pass-through language) in order to ensure they are not the party responsible for such charges.

 

Relevant Developments in the Region

 

Iran, according to the BBC, told ships not to transit the Strait of Hormuz, through which cargo passes between Oman and Iran and into the Persian Gulf. Iran said there were three U.S.- and U.K.-originating tankers “‘struck by missiles and…burning’” as of Sunday, according to the BBC. Some 150 tankers or more had dropped anchor in the Gulf, thereby avoiding movement through the Strait, BBC said. In addition to containerized cargo, roughly one-fifth of the world’s oil, and one-fifth of its liquified natural gas consumption traveled through the Strait in 2024, according to the U.S. Energy Information Administration.

 

Insurance prices for Gulf ships could surge by half, jumping from $250,000 to $375,000 for a $100 million ship, according to the Financial Times (“FT”). Costs already had ballooned in recent months as uncertainty in the region translated to skyrocketed war risk insurance rates and massively increased container spot rates. Insurers informed shipowners Saturday of their intent to cancel policies and raise prices, FT reported.

 

Summary of Ocean Carrier Announcements and Actions

 

While ocean carriers may continue to announce changes or revise their actions as the situation develops, the following includes some significant announcements from ocean carriers over the past several days:

 

• CMA CGM:
  • On Saturday, CMA CGM said, “[a]ll vessels inside Gulf, and bound to Gulf, have been instructed with immediate effect to proceed to shelter,” and that Suez service was suspended.
  • On Sunday, it announced an “Emergency Conflict Surcharge” of $2,000 per dry 20-foot container, $3,000 per dry 40-foot container, and $4,000 for reefers or special equipment. It said the surcharge applies to “cargo already afloat” as well as bookings Monday or later.
  • Also on Sunday it said it immediately would cease reefer bookings to or from “Iraq, Bahrain, Kuwait, Yemen, Qatar, Oman, United Arab Emirates, Kingdom of Saudi Arabia, Jordan, Egypt (Port of Ain Sokhna), Djibouti, Sudan and Eritrea.”
• Hapag-Lloyd:
  • Hapag-Lloyd on Sunday announced a “War Risk Surcharge” effective Monday, March 2, costing $1,500 per standard TEU, and $3,500 for reefers and special equipment. It said the charge would apply to goods already on the water in addition to new bookings Monday or later.
  • On Monday it announced “[a] Contingency Surcharge…for all sailings commencing on March 3 until further notice” in the same amounts. Also on Monday it highlighted “[o]perations may be affected” for shipments to or from the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Bahrain, Iraq, and Oman and said it had ceased bookings between “Mauritania, Senegal, Gambia, Guinee, Sierra Leone, Liberia, Ivory Coast, Ghana, Togo, Benin, Nigeria, Cameroon, Gabon, Equatorial Guinea, Congo Brazzaville, DR Congo, Angola, Namibia, South Africa, Kenya and Tanzania, Sudan, Djibouti” to, g., the United Arab Emirates, Iraq, Kuwait, Qatar, and the “Eastern Province of Saudi Arabia.” It further said it would stop all reefer bookings to or from Iraq, Bahrain, Kuwait, Qatar, United Arab Emirates, “Eastern Province of Saudi Arabia,” and Oman.
• MSC:
  • MSC said on Sunday it “has suspended all bookings for worldwide cargo to the Middle East region until further notice.” Although it announced a number of new freight rates on Monday, it had not announced a specific surcharge tied to the Iran conflict as of that day.
• Maersk:
  • Maersk announced on Sunday it will reroute all Middle East-India to Mediterranean and Middle-East-India to East Coast US shipments around the Cape of Good Hope and had chosen to “pause future Trans-Suez sailings through the Bab el-Mandeb Strait,” through which ships pass to the Red Sea and onto the Suez Canal.
  • On Monday, it announced that, “[e]ffective immediately,” it was “suspending reefer, dangerous / special cargo acceptance in and out of UAE, Oman, Iraq, Kuwait, Qatar, Bahrain and Saudi Arabia until further notice” and “suspending all new bookings between the India Subcontinent (India, Pakistan, Bangladesh and Sri Lanka) and the Upper Gulf markets of UAE, Bahrain, Qatar, Iraq, Kuwait, and Saudi Arabia (Dammam and Jubail only).” It said, “[c]onfirmed bookings accepted prior to this advisory will be reviewed on a case-by-case basis in light of the current operational constraints.” As of Monday, it had not announced a related surcharge.
• Ocean Network Express (“ONE”):
  • ONE on Monday said it “will temporarily suspend acceptance of new bookings for cargo moving both to and from the Persian Gulf until further notice.”

 

Monitoring Actions and Compliance

 

• New Charges: As carriers impose global actions to address the situation, it may be that they apply new surcharges, rates, or other changes to U.S. trade shipments in a manner that is not compliant or enforceable under the FMC’s regulations. Non-vessel operating common carriers (“NVOs”) may face the same issue when imposing their own actions or passing through noncompliant ocean carrier charges.

 

• Rerouting Existing Shipments: Existing shipments may be rerouted in practice, but the lawfulness of such changes will depend on the applicable tariffs, contracts, and terms and conditions, as will the lawfulness of charging shippers for expenses related to re-routing.

 

• Force Majeure: Ocean carriers may claim force majeure under their tariff, bill of lading terms and conditions, or Service Contract terms.  To the extent that ocean carriers claim force majeure, OTIs may also be able to claim force majeure depending on whether a force majeure clause exists in applicable tariffs, contracts, or terms and conditions, and, if so, how those clauses are written.

 

Thus, in light of VOCC announcements and uncertainty with regard to the conflict, OTIs and shippers would be prudent to:

 

1. Review their Service Contracts with ocean carriers, and any NSAs or NRAs with NVOs and customers, as well as governing bill of lading terms and conditions;
2. For NVOs, review (and update) their tariffs as soon as possible to ensure that new ocean carrier charges can be passed through to shippers/consignees;
3. Understand and assess alternatives in light of service disruption in the area of the Strait of Hormuz;
4. Coordinate with ocean carriers and other parties with regard to any affected shipments, particularly where shipments are re-routed or diverted to new destinations; and,
5. For OTIs, alert their customers to these charges, related service disruptions and delays, and how the OTIs will be handling them.

 

We hope this is helpful, and please contact us should you have any questions.  As we have during prior disruptions (COVID, port strikes, Red Sea attacks, etc.) we can assist in drafting notices to customers, tariff reviews/updates, reviewing the validity of new surcharges and routing imposed on shipments, and discussing those issues with ocean carriers.

 

Oliver M. Krischik okrischik@gkglaw.com

John H. Kester jkester@gkglaw.com

 

District Court Rules Disclosures to AI Tool are Not Privileged or Confidential

By Hannah F. Atkinson & John H. Kester

More and more businesses and individuals are turning to public artificial intelligence (“AI”) tools like ChatGPT and Claude for analysis and strategic advice. However, reliance on these useful tools is not without risks—particularly when potentially confidential or sensitive information is shared with the AI agent. In the legal context, disclosure of otherwise privileged information to a public AI agent can result in waiver of the attorney-client privilege and the attorney-work product immunity.

The U.S. District Court for the Southern District of New York (the “Court” or “SDNY”) ruled last week that a criminal defendant’s communication with the AI tool Claude was not protected by attorney-client privilege or the work product doctrine. It noted that its decision in that matter, United States v. Heppner (S.D.N.Y. Feb. 17, 2026), appeared to be the first time “nationwide” that a court had ruled on the subject.

The attorney-client privilege protects communications between a client and his or her attorney that are: (1) for the purpose of obtaining legal advice, and (2) intended to be and are kept confidential. The work-product doctrine provides a different degree of protection for materials prepared by or at the behest of counsel in anticipation or litigation or for trial.

In rejecting the assertion of the attorney-client privilege to the defendant’s exchanges with the AI agent, the Court emphasized that the defendant “does not, and indeed could not, maintain that Claude is an attorney.” The Court additionally noted that the defendant could not reasonably believe the communications were confidential because Claude’s written privacy policy allowed for public dissemination of user inputs. Moreover, the defendant’s later sharing of his Claude exchanges with his attorney could not retroactively impart attorney-client privilege. The Court noted that “it is black-letter law that non-privileged communications are not somehow alchemically changed into privileged ones upon being shared with counsel.”

The Court similarly rejected any work-product doctrine shield for the communications with Claude because the communications were “not ‘prepared by or at the behest of counsel.”

In light of the Court’s ruling, open questions remain as to (a) how other courts will rule on similar facts in criminal and civil litigation; (b) how courts will view AI communications made by counsel; and (c) how courts will view exchanges with a private AI agent or a public AI tool with a robust privacy policy.

Until the ground rules for protection of information shared with AI agents are clarified in subsequent court decisions, businesses and individuals should adopt a conservative approach that assumes communications with AI tools are unlikely to be protected by attorney-client privilege or the work-product doctrine. Therefore, it would be prudent to:

1. Avoid disclosing potentially privileged or confidential information in communications with AI tools;
2. Operate under the understanding that such communications will not achieve retroactive privilege or confidentiality if subsequently shared with counsel;
3. Wherever you have communicated with an AI agent, anticipate that, should you become involved in future litigation, opposing counsel will seek records of such exchanges.

GKG Law will continue to monitor related court rulings, and will keep its clients informed. Please contact us should you have any questions.

Hannah F. Atkinson hatkinson@gkglaw.com; John H. Kester jkester@gkglaw.com

GKG Law Wins Six-Figure Attorneys’ Fees Award for NVOCC Against Shipper who Refused to Pay Detention and Demurrage

By John H. Kester

GKG Law recently won $134,364 in attorneys’ fees and $1,135.76 in litigation costs for its client, a non-vessel-operating common carrier (“NVOCC”), in litigation before the Federal Maritime Commission (“FMC” or “Commission”). GKG Law previously had prevailed in the underlying action, wherein a shipper wrongly refused to pay more than $1 million in detention and demurrage charges and was seeking a refund of more than $1 million that it had paid the NVOCC.

Following an Initial Decision in its client’s favor, and the Commission’s affirming that Decision in full, GKG Law filed a petition for the shipper to pay the NVOCCs’ attorneys’ fees and costs because the shipper had failed to act in good faith in refusing to pay detention and demurrage payments that it had encouraged the NVOCC to advance on its behalf, and further had failed to act in good faith in filing suit to try to escape its payment obligations.

In deciding to award attorneys’ fees and costs, the FMC pointedly agreed with GKG Law’s argument, stating, “[The shipper]’s pursuit of patently baseless claims that were contradicted by its own long-standing course of dealing with [the NVOCC] for improper purposes weigh heavily in favor of awarding [the NVOCC] the fees it incurred in defending those claims.” It further recognized, as asserted by GKG Law, that the Shipper “did not have a colorable legal or factual basis for asserting that OSRA 2022 [(The Ocean Shipping Reform Act of 2022)], which was not retroactive, applied to claims that arose before its June 2022 effective date.”

In so holding, the Commission emphasized that it is antithetical to the Shipping Act for non-paying shippers to force NVOCCs to defend frivolous claims:

It is contrary to the purposes of the Shipping Act in promoting a system that works efficiently and fairly for NVOCCs… to be compelled to defend lengthy and costly litigation to retain or recoup pass-through charges which they were plainly due under the terms of their NRA with the shipper and for which the shipper previously and repeatedly acknowledged responsibility.

The Commission further highlighted that GKG Law’s attorney billing rates were consistent with – or even below – reasonable fees in the Washington, D.C. area.

The award of attorneys’ fees and costs here marks a significant victory for NVOs, confirming their ability to pass-through detention and demurrage charges to those parties ultimately responsible for payment of the charges, and their entitlement to recover attorneys’ fees if the shipper files groundless litigation in order to evade its payment obligations.

Please contact us if you have any transportation-related or other litigation-related issues. Brendan Collins may be reached by telephone at (202) 342-6793 or by e-mail at bcollins@gkglaw.com; John H. Kester may be reached at (202) 342-6751 or by e-mail at jkester@gkglaw.com; Rachel Amster may be reached at (202) 342-2542 or by e-mail at ramster@gkglaw.com.

 

 

Treasury Secretary: Bureau of Industry and Security’s 50% Rule Suspended for One Year

By John H. Kester and Oliver M. Krischik

Effective November 10, the U.S. will be suspending for one year the so-called “50% Rule” or “Affiliates Rule” that had extended applicability of Entity and Military End-User List restrictions, according to the White House. The move had been telegraphed by Secretary of the Treasury Scott Bessent in an interview on Fox Business last week.

The U.S. Department of Commerce’s Bureau of Industry and Security announced in September an interim final rule (“IFR”) stating that any entity that is at least 50 percent owned by one or more entities on the Entity List or the Military End-User List (“MEU List”), directly or indirectly, individually or in aggregate, would itself automatically be subject to Entity List/MEU List restrictions. The rule had downstream effect, meaning that if, e.g., an Entity List listed entity owns 50 percent of Company B which in turn owns 50 percent of Company C, even Company C is subject to Entity List restrictions. See, FAQ Answer 52.

“We are going to be suspending that for a year…in return for the suspension…on the rare earth licensing regime,” Bessent said in the interview. The suspension is not effective until November 10^th, according to the White House, and so transactions before then remain subject to the Affiliates Rule.

For its part, China agreed to suspend new export controls it had announced on October 9^th, and will issue general licenses valid for exports of rare earths, gallium, germanium, antimony, and graphite, according to the Administration, which it characterized as a de facto removal of the controls imposed by China since 2023. The actions are part of a broader set of agreements between both parties that also include the U.S. lowering tariffs on Chinese goods for a one-year period, also effective November 10^th, and China removing a number of its retaliatory tariffs and agreeing to purchase from the U.S. at least 12 million metric tons of soybeans from the U.S. this year and at least 25 million metric tons in each of 2026, 2027, and 2028, the White House stated.

Broadly, the Entity and MEU Lists impose supplemental export license requirements on parties whose activities BIS has deemed contrary to U.S. national security or foreign policy interests, or who present an unacceptable risk that goods will be used in or diverted to a military end-use.

Exporters and transportation intermediaries should take note that the rule will remain effective until November 10, 2025, which means that the “Affiliates Rule” remains effective for shipments and transactions occurring between September 29 and November 10, 2025.  GKG Law on October 1 previously alerted exporters to prudent compliance steps in response to the Rule.  The Temporary General License (“TGL”) remains in effect at this time authorizing shipments subject to certain terms and conditions.

Notwithstanding the one-year suspension, it would be prudent for forwarders, logistics providers, exporters, and manufacturers to continue developing their compliance programming and systems to account for the “Affiliates Rule” for the following reasons:

1. Potential Change in Policy. It is possible that the U.S. government will reimpose the “Affiliates Rule” early if there are problems with other terms of the agreements with China.
2. Ownership Due Diligence Can Take Time. Due Diligence with respect to ownership can take time with certain partners and sometimes require follow up communications.  Further, under the “Affiliates Rule,” exporters have an affirmative obligation to determine ownership percentages of any identified Entity List or MEU List owners before proceeding with unlicensed transactions. To the extent any ownership due diligence has not yet been completed, parties would benefit from having ownership due diligence complete for important and/or ongoing suppliers, partners, customers, and service providers when the rule comes back into effect.
3. Addressing Affected Partners. If companies have owners or partners that were affected by the “Affiliates Rule” identified during due diligence, the suspension period provides time for divestment of shares or for the parties to seek exemption from the “Affiliates Rule” by applying to the End-User Review Committee.
4. Updating Contractual Language. Existing contracts and contracts entered into during the suspension period may have terms that extend through November 10, 2026.  It would be prudent for companies to ensure that contracts to have appropriate provisions to handle due diligence procedures, reporting of changes in ownership or suspected noncompliance, and noncompliance generally.
5. Policies, Procedures, and Training. To the extent that compliance programs and training have not been updated to account for the “Affiliates Rule” or to incorporate new controls with respect to ownership screening, the suspension period provides additional time to: (1) effectively integrate those elements into companies’ policies and procedures; (2) and train staff on upcoming regulatory requirements and internal procedures.
6. Partners’ Risk Management Policies. Partners may insist that companies conduct and certify ownership screening even during the suspension period.  While the “Affiliates Rule” will be suspended, U.S. economic sanctions programs continue to include restrictions based on ownership of listed entities.  Accordingly, contractual requirements or risk management policies regarding ownership screening in supply chains may continue to develop in industries during the suspension period.

We hope this is helpful, and please let us know if you have any questions.

John H. Kester jkester@gkglaw.com

Oliver M. Krischik okrischik@gkglaw.com

Drug Enforcement Agency Focused on Fentanyl Precursor Imports

By John H. Kester

Importers working to ensure compliance with swiftly changing tariffs enforced by Customs and Border Protection would be prudent also to keep another arm of government in mind: the Drug Enforcement Agency (“DEA”). Just as the Trump Administration has pointed to fentanyl as justification for tariffs on China, Canada, and Mexico, the DEA has focused on identifying those importing fentanyl precursor products in the U.S.

In March, IMC Pro International Inc. (“IMC”), a North Carolina logistics firm, agreed to pay $400,000 to resolve allegations that it violated the Controlled Substances Act by transshipping fentanyl precursor chemicals. According to Reuters, the matter represented the first time in U.S. history that any U.S. shipping company has paid to settle allegations of violating that Act based on transshipment through the United States of fentanyl precursor chemicals – the DEA alleged the precursors were destined for lab(s) in Mexico. After seizing five packages identifying IMC as shipper, the DEA discovered an alleged business arrangement under which IMC allowed Chinese companies access to its accounts with common carriers in order to generate domestic shipping labels to be used for the goods those companies manufactured. The packages seized by DEA included:

• 1-BOC-4 Piperidone, now a List I Regulated Chemical;
  • List I chemicals are those designated by DEA that have legitimate uses and are used in manufacturing a controlled substance in violation of the CSA and are important to the manufacture of a controlled substance. Under 21 U.S.C. § 822(a), “Every person who manufactures or distributes any controlled substance or list I chemical,” or who proposes to do so, must register with DEA. The CSA additionally imposes requirements regarding recordkeeping, volumes, reporting suspicious transactions, etc. Knowing violations of the CSA may be prosecuted as criminal
• 2-Bromethyl Benzene, a chemical on the DEA’s Special Surveillance List (“SSL);
  • The SSL includes chemicals, products, materials and equipment most frequently used in the clandestine production of controlled substances or listed chemicals. Its stated purposes are:
    • to inform individuals and firms of the potential use of the items on the list in the manufacture of controlled substances and listed chemicals; and,
    • to remind individuals and firms that civil penalties may be imposed on them if they distribute a laboratory supply to a person who uses, or attempts to use, that laboratory supply to manufacture a controlled substance or listed chemical, in violation of the CSA, with reckless disregard for the illegal uses to which such a laboratory will be put.

In light of the foregoing, shipping companies would be prudent to:

• Ensure they have not created business arrangements allowing others to identify the shipping company as a shipper without oversight;
• Evaluate whether they are shipping any items regulated by, g., the DEA’s Regulated Chemicals lists or its Special Surveillance List;
• If they are importing such chemicals, ensure they are doing so in compliance with DEA regulations and all applicable laws; and,
• Conduct due diligence to ensure that they do not facilitate suspicious shipments, g., as in the example above, precursor chemicals from China transshipped to Mexico.

“I encourage shipping and logistics companies that may have engaged in similar business arrangements to uphold their own responsibilities and assist in the efforts to stop the flow of fentanyl,” Acting U.S. Attorney Margaret Leachman for the Western District of Texas was quoted as saying in a DEA release. Special Agent in Charge Daniel Comeaux for the DEA Houston Division stated, “DEA will continue to hold companies accountable who make it easy for drug trafficking organizations to get their hands on precursor chemicals to produce deadly synthetic drugs like fentanyl.”

We hope this is helpful, and please let us know if you have any questions.

John H. Kester jkester@gkglaw.com