United States Court of Appeals
for the Federal Circuit
__________________________
HORIZON LINES, LLC,
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant.
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2010-1138
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Appeal from the United States Court of International
Trade in Case No. 07-CV-0039, Judge Evan J. Wallach.
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Decided: December 6, 2010
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EVELYN M. SUAREZ, William Mullen PC, of Washing-
ton, DC, argued for plaintiff-appellee. With her on the
brief were GEORGE J. BOWLES, DEAN A. BARCLAY and J.
FORBES THOMPSON. Of counsel was ROBERT ZUCKERMAN,
Horizon Lines, LLC, of Charlotte, North Carolina.
EDWARD F. KENNY, Trial Attorney, Commercial Liti-
gation Branch, Civil Division, United States Department
of Justice, of New York, New York, argued for defendant-
appellee. With him on the brief were TONY WEST, Assis-
tant Attorney General, JEANNE E. DAVIDSON, Director, of
HORIZON LINES v. US 2
Washington, DC; BARBARA S. WILLIAMS, Attorney in
Charge, and JASON M. KENNER, Trial Attorney, of New
York, New York. Of counsel on the brief was MICHAEL
W. HEYDRICH, United States Customs and Border Protec-
tion, of New York, New York.
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Before RADER, Chief Judge, LOURIE and MOORE, Circuit
Judges.
MOORE, Circuit Judge.
The government appeals the decision of the Court of
International Trade concluding that the government owed
Horizon Lines, LLC (Horizon) a refund for duties imposed
on certain work performed on the ocean carrier Horizon
Hawaii (Hawaii) while the ship was overseas. See Hori-
zon Lines, LLC v. United States, 659 F. Supp. 2d 1285,
1290 (Ct. Int’l Trade 2009). We conclude that the Court of
International Trade erred when it held that the prior
condition of replaced parts is irrelevant to the determina-
tion of whether work constitutes a nondutiable modifica-
tion or a dutiable repair. However, because the Court of
International Trade determined that the replaced parts
on the Hawaii were in proper working order prior to
modification, this error was harmless. We thus conclude
that the Court of International Trade did not clearly err
when it determined that the work constituted a nonduti-
able modification, rather than a dutiable repair. We
affirm.
BACKGROUND
Horizon operates the Hawaii, a cargo ship that trans-
ports shipping containers. The shipping containers are
stacked in columns (cells) in the ship’s hold, which is
located below the main deck. Cell guides direct the
3 HORIZON LINES v. US
containers vertically down into the hold’s cells. Entry
guides sit at the top of the hold above the cell guides,
receive containers lowered by a crane operated 80 feet
above the deck, and direct the containers to the appropri-
ate cell.
In 2002, while at a shipyard in Lisnave, Mitrena Yard
in Setubal, Portugal, Horizon had the Hawaii’s entry
guides for cells 5, 6, and 7 (together with top portions of
integrally connected cell guides) replaced with modified
guides. The modified guides incorporated new design
features, including a more pronounced funnel shape,
which makes it easier for a crane operator to lower con-
tainers into the guides.
When the Hawaii returned to the United States, U.S.
Customs & Border Patrol (Customs) imposed duties on
the modified guides under 19 U.S.C. § 1466(a), which
requires Customs to assess duties on the expenses of
repairs made in a foreign country. 1 Horizon filed a pro-
test, which Customs denied with respect to the modified
guides. Horizon paid the assessed duties and filed a
complaint in the Court of International Trade, alleging
that the modified guides constituted a nondutiable modi-
fication, rather than a dutiable repair made in a foreign
country.
The Court of International Trade concluded that the
modified guides constituted nondutiable modifications,
rather than dutiable repairs. Horizon, 659 F. Supp. 2d at
1290. The court found that the modified guides consti-
tuted a new design feature that substantially improved
the speed and ease of container loading, substantially
1 Customs imposed duties on other work performed
overseas on the Hawaii. This appeal concerns only the
work performed on cell entry guides 5, 6, and 7.
HORIZON LINES v. US 4
reduced the susceptibility of the cell guide system to
damage, reduced the need for voyage repairs, and im-
proved the safety of cargo operations. Id. at 1287. The
court further found that the modified guides replaced cell
and entry guides that were in full proper working order
when the Hawaii arrived at Lisnave. Id. In support of
these findings, the court found the testimony of Horizon’s
port engineer, Mark Cianci, highly probative and credible.
Id. The court credited Mr. Cianci’s testimony that he
would have been informed if any of the prior cell entry
guides were not in good working order at the time the
vessel arrived in Lisnave, and that he was not so in-
formed. Id. The court found that the government pre-
sented no evidence that the Hawaii needed the modified
guides to correct deficient performance. Id. at 1288.
Rather, the court found that the evidence was conclusive
that the modified guides were intended to improve the
performance of the original design. Id. The court noted
that Horizon commissioned a naval architect and marine
engineer to prepare drawings for the new guides. Id. The
court found that if the work had been a repair, Horizon
would have used the original design to restore the cell
entry guides to their original condition. Id. The court
found the expert testimony of Edwin T. Cangin that the
work constituted a modification highly probative and
credible. Id. The court noted that the government did not
offer any testimony to rebut that of Mr. Cangin. Id. The
court noted that the government’s witness, Peter D. Kahl,
an experienced port engineer, considered the work to be a
modification. Id. The court further found that the analy-
sis relied on in Customs’ protest decision was unreliable
because, among other things, the analysis was prepared
by someone with limited experience in the area who, until
the time of her deposition in this litigation, did not under-
stand the difference between a cell guide and an entry
guide. Id.
5 HORIZON LINES v. US
The court determined that for purposes of 19 U.S.C.
§ 1466(a), the term “repairs” describes “putting something
that has sustained damage back into working condition
whereas the term ‘modifications’ describes work address-
ing a systematic problematic feature.” Horizon, 659 F.
Supp. 2d at 1289. The court distinguished Texaco Marine
Services, Inc. v. United States, 44 F.3d 1539, 1544 (Fed.
Cir. 1994), in which we stated that in the context of 19
U.S.C. § 1466(a), “the language ‘expenses of repairs’ is
broad and unqualified.” Horizon, 659 F. Supp. 2d at 1289.
The court explained that in Texaco, we interpreted the
language to cover all expenses (other than those excepted
in the statute) that, but for the dutiable repairs, would
not have accrued. Id. The court stated that Texaco did
not address the distinction between a repair and a modifi-
cation. Id. The court concluded that newly designed
installations on a vessel are alteration of the ship design
and not repairs, citing United States v. Admiral Oriental
Line, 18 C.C.P.A. 137, 141 (1930). Horizon, 659 F. Supp.
2d at 1289. The court determined that “[b]ecause the
HAWAII’s cell entry guides, after the shipyard work,
exhibited new design features that improved or enhanced
the vessel’s operation or efficiency, the ‘good working
order’ condition of the cell entry guides, before the ship-
yard work, is not a relevant consideration in determining
whether the work constitutes a non-dutiable modification,
for purposes of 19 U.S.C. § 1466(a).” Id. at 1289-90. The
court further determined that the fact that the modified
guides reduced the potential for future damage did not
transform the work into a repair. Id. at 1290. The court
thus concluded that Customs incorrectly assessed duties
for the new guides and owed Horizon a refund of
$104,560.00. Id. The government appeals, and we have
jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).
HORIZON LINES v. US 6
DISCUSSION
We review legal determinations of the Court of Inter-
national Trade de novo and findings of fact for clear error.
Jazz Photo Corp. v. United States, 439 F.3d 1344, 1349
(Fed. Cir. 2006). “The clear error standard requires us to
accept the Court of International Trade’s findings of fact
unless we are left with a definite and firm conviction that
a mistake has been committed.” Id. (quotation marks
omitted). We review evidentiary determinations for abuse
of discretion, id., and will only interfere with such deter-
minations if an erroneous ruling prejudiced substantial
rights, see Applied Medical Resources Corp. v. U.S. Surgi-
cal Corp., 147 F.3d 1374, 1380 (Fed. Cir. 1998).
The government argues that the Court of Interna-
tional Trade erred as a matter of law by interpreting
“repairs” to exclude the modified guides. Specifically, the
government asserts that the court erred by interpreting
“repairs” to include work that puts something that has
sustained damage back into working condition but to
exclude work that addresses a systematic problematic
feature. The government argues that the term “repair”
should be broadly construed, citing Texaco, 44 F.3d at
1544. The government also argues that we must inter-
pret “repair” according to its plain meaning, citing E.E.
Kelly & Co. v. United States, 17 C.C.P.A. 30 (1929), and
American Mail Line, Ltd. v. United States, 24 C.C.P.A. 70
(1936).
The government further argues that the Court of In-
ternational Trade erred as a matter of law when it deter-
mined that the condition of the old cell entry guides was
irrelevant. The government explains that Customs con-
siders the condition of a replaced part when determining
whether work constitutes a repair or a modification. The
7 HORIZON LINES v. US
government asserts that the term “repairs” includes an
upgrade if the upgrade restores an old part to proper
working order.
The government also contends that the court erred
when it concluded that the old cell entry guides were in
proper working order. According to the government, the
court erred by relying on Mr. Cianci’s testimony that
Horizon routinely reported and repaired cell damage. The
government asserts that because there was no direct
evidence on point, the court must have relied on Federal
Rule of Evidence (FRE) 406, which states that evidence of
a habit or routine practice is relevant to prove that the
person or business acted in conformity therewith. The
government asserts that the testimony of Mr. Cianci was
insufficient as a matter of law to establish a routine
business practice under FRE 406 because he did not
testify about specific instances of the business practice.
The government asserts that other evidence belies any
such business practice, noting that when the Hawaii
arrived at the Lisnave shipyard, cell entry guides 5, 6,
and 7 were not inspected, and all of the cell entry guides
that were inspected exhibited damage. The government
asserts that this shows that Horizon did not repair dam-
age at port prior to arriving at the shipyard. The gov-
ernment also cites the testimony of Mr. Kahl, who
explained that not all ship officers report damage, and
port engineers might ignore some damage reports. The
government further cites the testimony of Mr. Kahl that
on one occasion, a damage report indicated that a cell was
unusable but the cell was not repaired for two months.
The government thus asserts that Mr. Cianci may not
have known of damage to the cell entry guides.
Horizon responds that the Court of International
Trade correctly determined that the new guides consti-
HORIZON LINES v. US 8
tuted a nondutiable modification, citing Admiral Oriental,
18 C.C.P.A. at 141. Horizon asserts that it installed the
new guides to reduce the potential for future damage and
to improve the speed and efficiency of container loading,
not to repair old damage. Horizon further asserts that
prior to the modification, the old cell entry guides were in
proper working order in that they were able to accept
cargo and were actually being used for that purpose.
Horizon explains that because it is in the business of
cargo transport, it routinely reports and immediately
repairs any damage that would prevent container trans-
port.
Horizon further responds that the Court of Interna-
tional Trade correctly concluded that the condition of the
old guides was irrelevant. Horizon asserts that evidence
of prior good working order suffices to show that a repair
did not take place, while evidence of prior disrepair is
necessary but not sufficient to prove that a repair took
place. Horizon asserts that the condition of the old cell
entry guides was not relevant because Horizon planned to
modify those guides regardless of their condition.
As to the government’s evidentiary arguments, Hori-
zon asserts that the court properly considered Mr. Ci-
anci’s testimony. Horizon explains that FRE 406 gives
courts discretion to consider evidence of business practice
on a case-by-case basis. Horizon contends that FRE 406
does not require specific instances of conduct, noting that
Congress deleted a subsection of FRE 406 that identified
“specific instances of conduct” as one of several ways to
establish routine practice. Horizon asserts that the
evidence that the old cell entry guides were in proper
working order, including Mr. Cianci’s testimony, was
probative and credible. Horizon contends that the testi-
mony of Mr. Kahl does not undermine Mr. Cianci’s testi-
9 HORIZON LINES v. US
mony because when Mr. Kahl testified that not all dam-
age was reported, he did not distinguish between damage
that would prevent cargo transport and damage not
affecting the carriage of cargo. Horizon also asserts that
Mr. Cianci’s testimony was cumulative of other evidence
that the cell entry guides were in good working order.
We agree with the Court of International Trade that
the term “repairs” in 19 U.S.C. § 1466 describes “putting
something that has sustained damage back into working
condition.” Horizon, 659 F. Supp. 2d at 1289. Nothing in
the statute indicates that the term “repairs” has a special
meaning within § 1466. Our predecessor court, the Court
of Customs and Patent Appeals, determined that the term
“repairs” in the context of § 1466 has its plain and ordi-
nary meaning. Am. Mail Line, 24 C.C.P.A. at 73; see also
Admiral Oriental, 18 C.C.P.A. at 141 (citing E.E. Kelly &
Co. v. United States, 17 C.C.P.A. 30, 32 (1929)). As indi-
cated in these cases, repair means:
Repair, n. 1. The process of repairing; restoration
after decay, waste, injury, or partial destruction;
supply of loss; reparation; as, the repair of a build-
ing; often in the plural; as, to make repairs on a
roof. 2. Condition after use; especially, good condi-
tion; condition after repairing; as, in what repair
is the house?
Repair, vt. 1. To mend, add to or make over; as, to
repair a building. 2. To restore to a sound or good
state; as, to repair health.
E.g. Admiral Oriental, 18 C.C.P.A. at 141.
The Court of International Trade erred, however, in
concluding that the condition of the replaced part is
HORIZON LINES v. US 10
irrelevant to a determination of whether such a replace-
ment constitutes a repair. The plain meaning of “repair”
describes putting something that has sustained damage
back into working condition. It requires “restoration after
decay, waste, injury, or partial destruction”—all of which
indicates that the part being repaired was damaged—
which necessitated the repair. Thus, the prior condition
of a part that is removed or replaced during work on a
vessel is relevant to whether that work constitutes a
repair. We do not conclude, however, that the prior
condition is always dispositive of whether work consti-
tutes a repair or modification. We note that there would
be no need to repair a part that is in working order. It is
unnecessary for us to decide in this case whether re-
placement of a defective part with an upgraded, different
part constitutes a repair or modification.
Section 1466 does not impose a duty upon alterations
of ship design that constitute modifications rather than
repairs. Admiral Oriental, 18 C.C.P.A. at 141. In Admi-
ral Oriental, the court concluded that the installation of
swimming tanks on steamships could not be regarded as
repairs. The ships had previously been used to transport
troops in wartime but were converted to first-class pas-
senger ships after World War I. Id. at 137. The superin-
tendent of the shipping line explained that the
installation of the swimming tanks was made necessary
in part by the change in routes of the ships through
southern waters. Id. at 138. The court rejected the
government’s argument that the installation constituted a
repair, reasoning that “[t]he word ‘repair,’ as the word
‘amend,’ contemplates an existing structure which has
become imperfect by reason of the action of the elements,
or otherwise.” Id. (quoting Gagnon v. United States, 193
U.S. 451, 457 (1904)). Following this decision, Customs
has held that modifications, alterations, or additions to
11 HORIZON LINES v. US
the hull of a vessel are not subject to vessel repair duties.
See, e.g., HQ 116627 (Mar. 16, 2006); HQ 112890 (Oct. 12,
1993).
Whether work constitutes a repair or a nondutiable
modification is a factual inquiry to be determined on a
case-by-case basis. We agree with the Court of Interna-
tional Trade that the term repairs “describes putting
something that has sustained damage back into working
condition whereas the term ‘modifications’ describes work
addressing a systematic problematic feature.” Horizon,
659 F. Supp. 2d at 1289. In light of this definition, we
conclude that the court erred when it held that the condi-
tion of the old cell entry guides was irrelevant to the
determination of whether work constitutes a nondutiable
modification or a dutiable repair.
In this case, however, the court went on to find that
the old cell entry guides were in full proper working order
when the Hawaii arrived in Lisnave, and because this
finding is not clearly erroneous, we affirm. The court
found the testimony of Horizon’s port engineer, Mr.
Cianci, highly probative and credible. We see no error,
evidentiary or otherwise, in the court’s consideration of
this evidence. As the record reflects, Horizon prepared in
advance of its arrival into Lisnave to have the cell entry
guides at issue replaced with newly designed guides that
would improve the speed and ease of container loading,
reduce susceptibility to damage, and improve safety – in
short it prepared to upgrade the cell entry guides. Be-
cause the cell entry guides were in full proper working
order when they were replaced with the substantially
upgraded guides, the facts of this case support the Court
of International Trade’s conclusion that the replacement
of the cell guides constituted a nondutiable modification.
HORIZON LINES v. US 12
CONCLUSION
For the foregoing reasons, we affirm the judgment of
the Court of International Trade.
AFFIRMED