Volkswagon of America, Inc v. United States

United States Court of Appeals for the Federal Circuit
2007-1518

VOLKSWAGEN OF AMERICA, INC.,

Plaintiff-Appellant,

v.

UNITED STATES,

Defendant-Appellee.

Thomas J. Kovarcik, of New York, New York, argued for plaintiff-appellant.

Barbara S. Williams, Attorney in Charge, International Trade Field Office,
Commercial Litigation Branch Civil Division, United States Department of Justice, of
New York, New York, argued for defendant-appellee. With her on the brief were Jeffrey
S. Bucholtz, Acting Assistant Attorney General, and Jeanne E. Davidson, Director, of
Washington, DC. Of counsel on the was Yelena Slepak, Office of Assistant Chief
Counsel, International Trade Litigation, United States Bureau of Customs and Border
Protection, of New York, New York.

Appealed from: United States Court of International Trade

Senior Judge Richard W. Goldberg
 United States Court of Appeals for the Federal Circuit

2007-1518

VOLKSWAGEN OF AMERICA, INC.,

Plaintiff-Appellant,

v.

UNITED STATES,

Defendant-Appellee.

Appeal from the United States Court of International Trade in case no. 96-00132, Senior
Judge Richard W. Goldberg.

___________________________

DECIDED: August 22, 2008
___________________________

Before RADER, Circuit Judge, ARCHER, Senior Circuit Judge, and DYK, Circuit Judge.

DYK, Circuit Judge.

In this customs case, we again address issues concerning the allowance for

merchandise alleged to be defective at the time of importation under 19 C.F.R.

§ 158.12. Plaintiff-Appellant Volkswagen of America, Inc. (“Volkswagen”), appeals from

a final judgment of the United States Court of International Trade in favor of Defendant-

Appellee United States (“the government”). The Court of International Trade held that:

1) it lacked jurisdiction over Volkswagen’s claims with respect to repairs made after the

protest date; 2) with respect to repairs made before the protest date to correct alleged

manufacturing defects, Volkswagen’s evidence failed to establish that the repairs
related to defects existing at the time of importation; and 3) with respect to repairs made

before the protest date to correct design defects in response to government recall

notices, Volkswagen failed to establish that it had contracted for merchandise free from

design defects. Volkswagen of Am., Inc. v. United States, 484 F. Supp. 2d 1314 (Ct.

Int’l Trade 2007).

We agree that the Court of International Trade lacked jurisdiction over

Volkswagen’s claims for repairs made after the date of its protest. With respect to

claimed repairs not made in response to government recalls, we find that the Court of

International Trade’s conclusion that Volkswagen failed to establish by a preponderance

of the evidence that those defects existed at the time of importation was not clearly

erroneous. With respect to repairs made before Volkswagen’s protest to comply with

government recall notices, we find Volkswagen contracted for vehicles that were free

from design defects. With respect to repairs made to comply with federal safety recall

notices, we find that Volkswagen has established that the repairs were made to correct

defects existing at the time of importation. With respect to repairs made to comply with

other government-mandated recalls, we remand to the Court of International Trade for

further proceedings. We also conclude that the Court of International Trade did not err

in denying Volkswagen’s motion for rehearing on its alternative theory for relief under 19

U.S.C. § 1401a (“maintenance expenses”), since Volkswagen did not properly assert

the § 1401a claim below. We therefore affirm-in-part, reverse-in-part, and remand.

BACKGROUND

2007-1518 2
 This case concerns claims for a reduction of the appraised value of imported

merchandise as an allowance for repairs made to correct latent defects, pursuant to 19

C.F.R. § 158.12. That regulation provides in part:

Allowance in value. Merchandise which is subject to ad valorem or
compound duties and found by the port director to be partially damaged at
the time of importation shall be appraised in its condition as imported, with
an allowance made in the value to the extent of the damage.

19 C.F.R. § 158.12(a).

Volkswagen of America imported automobiles from two foreign manufacturers—

Volkswagen AG, Volkswagen’s parent company in Germany, and Audi AG—in 1994

and 1995. The imports constituted eighteen distinct Custom entries. 1 Pursuant to 19

U.S.C. § 1401a(b), Customs appraised the value of the imported vehicles based on the

transaction value of the vehicles, that is, the price that Volkswagen actually paid for the

goods at the time of importation. Customs liquidated (and assessed duties on) each of

those entries according to the appraised value of the vehicles.

Subsequently, Volkswagen asserts that it determined that many of those vehicles

contained manufacturing and design defects. Volkswagen claims that it repaired under

warranty defects in those vehicles after they had been sold to the ultimate customer.

The standard warranty clause provided that “[Volkswagen] warrants to the owner that

the Contractual Product is free from defects in material and workmanship . . . .” J.A. at

102, 110. In turn, Volkswagen was reimbursed for the costs of the warranty repairs

pursuant to the sales contract between it and the foreign manufacturers. The contract

1
Volkswagen originally made claims on sixty-nine distinct entries, but later
moved to sever and dismiss all but eighteen of those entries. Volkswagen of Am., Inc.
v. United States, 277 F. Supp. 2d 1364, 1366 (Ct. Int’l Trade 2003).

2007-1518 3
provided that the “[foreign manufacturer] shall reimburse to [Volkswagen] the warranty

costs it has expended pursuant to paragraph a) above [the agreement to warrant every

product to the consumer], including recall costs (Appendix 7) and service action costs.”

J.A. at 99, 107.

Volkswagen filed with Customs several duty refund claims for an allowance on

the appraised value of the imported vehicles equal to the warranty costs to repair the

defective vehicles. Customs denied each of Volkswagen’s claims. In response, from

July 2, 1993, through November 13, 1995, Volkswagen submitted to Customs nineteen

protests, contesting the denial of the claimed allowances. Customs denied each of

Volkswagen’s protests. Volkswagen then brought a civil action in the Court of

International Trade pursuant to 28 U.S.C. § 1581(a) to contest Customs’ denial of its

protests.

Both Volkswagen and Customs moved for summary judgment. The Court of

International Trade first determined that it lacked jurisdiction over claims that were

based on repairs that occurred after Volkswagen filed its protests. Volkswagen of

America, Inc. v. United States, 277 F. Supp. 2d 1364, 1369 (Ct. Int’l Trade 2003). With

respect to repairs made before the dates of the protests, the Court of International

Trade denied both Volkswagen’s and Customs’ motions for summary judgment, finding

a genuine issue of material fact as to whether the defects at issue existed at

importation. The Court of International Trade stayed further proceedings pending a

decision by our Court in Saab Cars USA, Inc. v. United States, 434 F.3d 1359 (Fed. Cir.

2006).

2007-1518 4
 We held in Saab that the Court of International Trade did not err in determining

that the importer failed to establish by preponderant evidence that most of the warranty

repairs that it submitted for an allowance existed at importation. Id. at 1374. The

importer relied heavily on its warranty agreement and on a warranty repair spreadsheet

detailing the various repairs to establish that it only made warranty repairs on, and was

only reimbursed for, actual manufacturing defects. It also provided evidence that it

employed a “rigorous system for tracking and auditing warranty repair claims.” Id. at

1374. We found that “it is not clear that all warranty repairs necessarily indicate

damage that existed ‘at the time of importation,’” and that the warranty evidence alone

was insufficient to support Saab’s claim for repair costs. Id.

However, we found that the port repair expenses, that is, repairs made in the port

at entry, were different because they were made “almost immediately after importation.”

Id. at 1364. We concluded that “the proximity of the port repairs to the time of

importation, together with the other evidence provided by Saab, was sufficient to

establish that the defects in question existed at the time of importation.” Id. at 1374.

Following our decision in Saab, the Court of International Trade lifted its stay in

this case. The court ordered Volkswagen to “file a brief addressing why it believes the

evidence in this case . . . establishes that the alleged defects existed at the time of

importation . . . .” J.A. at 5 n.2.

In response, Volkswagen submitted two exhibits detailing the repairs made to the

vehicles in question and seeking to demonstrate that the vehicle warranty covered

repairs made to correct manufacturing or design defects. Volkswagen asserted that it

would only make repairs if such repairs were required by the vehicle warranty, and the

2007-1518 5
foreign manufacturer would only reimburse it for such repairs if they were made

pursuant to the warranty.

The first, Exhibit A, included eighteen documents—one for each entry. Each

document consisted of a chart, listing thousands of vehicle warranty repairs. Those

charts provided eighteen separate columns of information regarding each repair. The

repairs were organized by corresponding “factory model code” and VIN numbers

(vehicle identification number). In addition to the identifying information, the chart

provided descriptive information on the nature of the repair, such as a “damage code”

and a “damage description.” The chart also set forth the “vehicle mileage,” the “in

service date,” and the “repair date.” Finally, each repair included detailed cost

information: “repair cost billable to factory,” “qualifying warranty repair cost,” “qualifying

warranty overhead cost,” and “total qualifying warranty cost.” For those repairs that

Volkswagen had determined were not covered under warranty, the corresponding “total

qualifying warranty cost” was listed at $0.00. For example, two repairs—one for a

battery testing (alleged to be a defect repaired under warranty) and one for a 7,500-mile

maintenance (admitted not to be a defect repaired under warranty)—are shown below:

2007-1518 6
 The second exhibit, Exhibit B, purported to give more detailed information

regarding each of the separate “claim types” listed in Exhibit A by listing each of the

separate claim type codes along with a corresponding description of the claim type

code. In addition, the claim type codes were separated into “included claim types” and

“excluded claim types,” the former being repair claims covered under Volkswagen’s

warranty, and the latter not being covered. Volkswagen did not submit any expert

testimony explaining why these exhibits established that particular categories of repairs

related to defects that existed at importation. However, the list of “included claim types”

included repairs made pursuant to the requirements of government recall notices.

These categories included: “Recall Campaign Claim” (including federal government

safety recalls), “49 State Emissions Claim,” “California Emissions Claim,” “California

Diesel Emissions Claim,” and “FTC Claim.”

For pre-protest repairs, the court issued a final decision without trial in favor of

the government. With respect to repairs other than recall repairs, the court found

Volkswagen’s warranty agreement and exhibits were insufficient to establish that the

repairs were made to correct defects existing at importation. With respect to repairs

made to correct design defects in response to government mandated recalls, the court

apparently concluded that, under the importation agreement, Volkswagen had ordered

and imported vehicles containing design defects and could not claim the repair costs.

2007-1518 7
Volkswagen petitioned the court for rehearing, contending for the first time that the

repairs constituted post-importation maintenance expenses, deductible under a

separate provision, 19 U.S.C. § 1401a. The Court of International Trade denied

Volkswagen’s petition for rehearing, and Volkswagen timely appealed. We have

jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).

DISCUSSION

We review the trial court’s legal conclusions de novo; we review questions of fact

for clear error. Saab, 434 F.3d at 1372. Volkswagen asserts that we may review de

novo the Court of International Trade’s determination that the evidence presented does

not establish that the repairs were made on defects that existed at importation.

However, these are determinations of fact that we cannot disturb unless we find them to

be clearly erroneous.

I

Volkswagen first contends that the Court of International Trade improperly held

that it lacked jurisdiction with respect to repairs completed after Volkswagen’s protests.

The Court of International Trade has “exclusive jurisdiction of any civil action

commenced to contest the denial of a protest, in whole or in part, under section 515 of

the Tariff Act of 1930.” 28 U.S.C. § 1581(a) (2000). It has no jurisdiction, however,

over an action based on an invalid protest. Saab, 434 F.3d at 1365. A valid protest

“must set forth distinctly and specifically--(A) each decision described in subsection (a)

of this section as to which protest is made; (B) each category of merchandise affected

by each decision set forth under paragraph (1); (C) the nature of each objection and the

reasons therefor; and (D) any other matter required by the Secretary by regulation.” 19

2007-1518 8
U.S.C § 1514(c)(1). Similarly, Customs’ regulations require a valid protest to contain

“[a] specific description of the merchandise affected by the decision as to which protest

is made” and “[t]he nature of, and justification for the objection set forth distinctly and

specifically with respect to each . . . claim . . . .” 19 C.F.R. § 174.13(a)(5)-(6).

We have found that the statute and regulation require a valid protest to “‘contain

a distinct and clear specification of each substantive ground of objection’ so as to ‘show

that the objection taken at the trial was at the time in the mind of the importer.’” Saab,

434 F.3d at 1367 (quoting Davies v. Arthur, 96 U.S. 148, 151 (1877)). A protest is “not

akin to notice pleadings.” Id. (emphasis and internal quotation marks omitted). Instead

the protest must be “sufficient to notify the collector of its true nature and character, to

the end that he might ascertain the precise facts, and have an opportunity to correct the

mistake and cure the defect.” Id.

In Saab, we rejected the argument that the Court of International Trade had

jurisdiction over “cars to which no repairs had been made at the time of protest,” finding

that “[t]he regulation and statute, with their requirement that protests be set forth

‘distinctly and specifically,’ do not permit protests to proceed on such nebulous

grounds.” Id. Volkswagen attempts to distinguish Saab because Volkswagen is only

claiming repairs made on vehicles that had already been included in its protest, while in

Saab, the importer attempted to expand jurisdiction to vehicles not identified in the

protest. In other words, Volkswagen argues that, for purposes of jurisdiction, it is

sufficient to identify in a protest the vehicles for which an allowance is claimed in order

to cover all subsequent repairs made to those vehicles.

2007-1518 9
 We disagree. Repairs made subsequent to Volkswagen’s protests were not “set

forth distinctly and specifically” in the protests as required by 19 U.S.C § 1514(c)(1) and

19 C.F.R. §§ 174.13(5)-(6). Because those repairs were not properly described in a

valid protest, the Court of International Trade is without jurisdiction over Volkswagen’s

claim for an allowance based on those repairs. We therefore conclude that the Court of

International Trade correctly held that it lacks jurisdiction over alleged defects that were

repaired after Volkswagen’s protests. 2

II

The Court of International Trade did, however, have jurisdiction over repairs

made before the protest. Volkswagen claims that, with respect to such repairs, it is

entitled to an allowance pursuant to 19 C.F.R. § 158.12 in the amount of the cost it

incurred to repair latent defects. 19 C.F.R. § 158.12 provides:

Merchandise which is subject to ad valorem or compound duties and
found by the port director to be partially damaged at the time of
importation shall be appraised in its condition as imported, with an
allowance made in the value to the extent of the damage.

2
Volkswagen also argues that a pre-importation estimate of warranty costs
is sufficient. Again, we disagree. An estimate does not satisfy the requirement that the
importer “set forth distinctly and specifically” each claim as required by the statute and
the regulation.
In a related appeal, we held that 19 C.F.R. § 158.12 does not create a separate
cause of action for an allowance on defective goods, and that the only cause of action
for such an allowance must be made pursuant to the procedures set forth in 19 U.S.C. §
1514. Volkswagen of Am., Inc., v. United States, No. 2007-15, slip op. at 1-2 (Fed. Cir.
July 16, 2008). Under § 1514, Volkswagen was required to file a protest within 90 days
of importation. The effect is to leave Volkswagen with no ability to seek an allowance on
latent defects discovered after 90 days from importation. The statute has since been
amended to give importers 180 days to file a protest. 19 U.S.C. § 1514(c)(3), amended
by Pub.L. 108-429, § 2103, Dec. 3, 2004.

2007-1518 10
We have held that this regulation “applies when the merchandise received is worth less

than the merchandise that was ordered.” Samsung Elecs. Am., Inc. v. United States,

106 F.3d 376, 378 (Fed. Cir. 1997). Merchandise containing latent defects is certainly

worth less than the merchandise that was ordered. See id. at 380 (“[T]he goods

Samsung imported contained latent manufacturing defects at the time of

importation . . . [which were] worth less than defect-free goods.”).

Surprisingly, the government argues that § 158.12 does not cover latent defects.

It argues that “[w]hile some latent manufacturing defects may reflect ‘damage’ existing

upon importation, not all such ‘defects’ automatically qualify as damage pursuant to 19

C.F.R. § 158.12.” Appellee’s Br. 25. That is, the government appears to argue that the

cost of repairs is not a representative measure of damage, and that, therefore,

Volkswagen has not shown that the repaired defects qualify as damage. We previously

rejected this argument in Saab, where we held that “evidence of repair costs is a

standard measure of diminution in value.” 434 F.3d at 1375. Thus, we concluded that a

latent manufacturing or design defect constitutes “damage” for purposes of the

regulation, and that the cost of repairing those defects is a measure of the value of that

damage.

We turn next to the central question on appeal: whether Volkswagen submitted

evidence sufficient to establish that the repairs related to latent defects existed at the

time of importation. The Court of International Trade correctly required Volkswagen to

prove by a preponderance of the evidence that the claimed defects repaired under

warranty existed at the time of importation and were not related to damage caused by

2007-1518 11
post-importation use. 3 Id. at 1372-3. The Court of International Trade, relying on our

decision in Saab, concluded that “evidence of warranty claims alone is not sufficient

without corroboration, even if the warranty only covers repairs for design and

manufacturing defects.” J.A. at 17.

Volkswagen contends that the Court of International Trade imposed a special

evidentiary requirement to introduce “corroboration” of its warranty claims by

independent sources. We agree that Saab does not impose a requirement that an

importer provide corroboration evidence from a source other than the importer. But we

also do not read the Court of International Trade’s decision as resting on any such

theory. Rather, we read the Court of International Trade’s decision as resting on two

propositions: first that evidence that repairs were made to satisfy warranty obligations

standing alone is insufficient to establish that the repairs were made to correct

manufacturing defects; and second, that repairs made to correct design defects in

connection with government recall notices were not repairs mandated by the agreement

between the importer and the manufacturer.

3
Volkswagen contends that the Court of International Trade applied the
wrong standard of proof. Volkswagen argues that the Court of International Trade
required it to prove by clear and convincing evidence, rather than by a preponderance
of the evidence, that the defects existed at the time of importation. See Fabil Mfg. Co.
v. United States, 237 F.3d 1335, 1339 (Fed. Cir. 2001) (holding that the proper standard
of proof is preponderance of the evidence). Volkswagen’s position is belied by the
Court of International Trade’s opinion itself, which expressly cites the correct standard:
“[T]he Court is asked to determine . . . whether Volkswagen has put forth sufficient
evidence to sustain its burden of proving by a preponderance of the evidence that
certain defects existed in its merchandise at the time of importation.” J.A. at 10-11
(emphasis added).

2007-1518 12
 A

We first address the alleged manufacturing defects. Volkswagen argues that the

evidence that it approved a claim as a warranty repair and that the manufacturer

reimbursed it for the cost of the repair is sufficient. Volkswagen relies heavily on its

sales contracts with the foreign manufacturers that, by their very terms, appear only to

cover latent defects. Those agreements set out that “[the foreign manufacturer] shall

reimburse to [Volkswagen] the warranty costs it has expended,” J.A. at 99, 107,

pursuant to the standard warranty, which provides in part that “[Volkswagen] warrants to

the owner that the Contractual Product is free from defects in material and

workmanship . . . .” J.A. at 102, 110 (emphasis added). The sales contract between

Volkswagen and its foreign manufacturers provides that the foreign manufacturers

retain the “the right at any time to audit [Volkswagen’s] implementation and

administration of its warranties as previously approved by [the manufacturer].” J.A. at

100. Volkswagen implemented procedures for determining whether a particular repair

is covered by the warranty. John Haynes, a Volkswagen employee, submitted an

affidavit describing the warranty approval process in detail. 4

4
Haynes stated:

Because not all claim-types qualify as warranty claims, [Volkswagen] uses
claim-type codes for initial screening of the claim to determine liability and
whether it is covered by new vehicle warranties. Claims submitted by a
dealer that do not pass initial warranty coverage screening may be
returned to the dealer for correction or reviewed by a claims adjuster in
[Volkswagen’s] Warranty Claims Department. If the information contained
in the claim is sufficient for the WIN [warranty information network] system
or the adjuster to determine warranty coverage, the claim is approved. If
the information is insufficient, the WIN system or the adjuster requests
additional information from the dealer, such as documentation or

2007-1518 13
 The Court of International Trade rejected Volkswagen’s argument that the

evidence showing that the repairs were made under warranty established that the

defects existed at importation. It stated: “[e]ven if these warranties make it clear that

Volkswagen would be reimbursed by the manufacturer only for actual manufacturing or

design defects in the imported automobiles, still ‘it is not clear that all warranty repairs

necessarily indicate damage that existed at the time of importation as required for an

allowance under § 158.12.’” J.A. at 17 (quoting Saab, 434 F.3d at 1374). We see no

basis for overturning the decision of the Court of International Trade. Virtually the same

arguments were rejected in Saab.

As noted earlier, in Saab, we distinguished between Saab’s two claims—port

repair expense claims and later warranty expense claims involving repairs to vehicles

delivered to the ultimate purchasers. The proximity of the port repairs to the time of

importation, we concluded, “provided critically probative evidence that the defects in

question actually existed at importation.” Id. at 1373. The absence of evidence linking

the warranty repairs to defects existing at the time of importation, on the other hand,

was fatal to Saab’s warranty repair claim. We found that “it is not clear that all warranty

repairs necessarily indicate damage that existed ‘at the time of importation,’ as required

for an allowance . . . .” Id. at 1374. We noted, for example, “that the perforation

warranty applies to body rust that occurs ‘during the course of normal usage.’” Id. We

submission of the vehicle part claimed to be defective. If the adjuster
determines that the information submitted does not support the claim, he
denies the claim. Approved claims are processed forthwith for payment.
Denied claims may be appealed. If upheld on appeal, denied claims are
“written off” by the dealer.

J.A. at 77.

2007-1518 14
also found it plausible that the warranty agreement would cover optional equipment

installed by the dealer. Thus, we found that, although “some repairs authorized under

the various warranties may relate to damage that existed at the time of importation, they

do not necessarily so relate.” Id. We held that Saab’s evidence was not sufficient to

prove by a preponderance of the evidence that its warranty repair claims existed at the

time of importation.

Here, as in Saab, the mere existence of the warranty agreements is insufficient.

While the optional equipment problem identified in Saab appears not to be present here,

the situation is otherwise similar. Under the agreements, repairs made to correct

defects resulting from mishandling during transit from the point of entry to the dealer’s

lot would appear to be covered by warranty as would repairs of damage to vehicles

occurring in the dealer lot. The agreements do not rule out the possibility that

Volkswagen made warranty repairs in order to create consumer goodwill, even where

the defect is not covered under warranty. The mere fact that the repair is covered by

warranty is insufficient to establish that the repair related to a defect existing at the time

of importation.

Volkswagen urges that, even if the warranty agreements are insufficient, the

detailed description of each repair made under warranty provides sufficient proof that

those repairs were made to correct manufacturing defects. According to Volkswagen, it

is this detailed description which distinguishes its case from the warranty evidence

found insufficient in Saab.

The Court of International Trade rejected Volkswagen’s contention that the brief

descriptions of each repair sufficed: “[t]he short descriptions in Exhibit A provide slightly

2007-1518 15
more detail than Saab’s brief descriptions of repaired parts; however . . . they are still

insufficient to make a § 158.12 claim.” J.A. at 18. We find no error in the Court of

International Trade’s factual finding. The government correctly points out that it may

well be that some of these discovered defects did not exist at the time of importation.

For example, Exhibit A provides the following description of one of the warranty repairs:

“windshield washer container; leaking, replaced.” J.A. at 84. Although it is possible that

the windshield washer container was leaking at the time it was imported, it is equally

possible that the container was damaged in transit from the point of entry or while in the

dealer’s lot. Without more, we cannot conclude from the mere fact that Volkswagen

made a determination that the repair was covered under its warranty that the alleged

defect existed at importation. Indeed, Volkswagen presented no evidence that it

determines (or how it determines) whether a particular vehicle presented for repair has

a defect that existed at the time of importation.

To be sure, some repairs may have been made to correct defects that did exist at

the time of importation. For example, a repair described as “ignition lock cylinder/key;

mechanical defect, replaced” is one that is likely a manufacturing defect. J.A. at 85.

But, with the exception of the government recalls discussed below, Volkswagen relied

solely on the written documents and a “categorical approach.” J.A. at 21. It did not

attempt to distinguish between different categories of warranty repairs or present any

expert testimony that certain categories of repairs would be more likely than not to be

made on defects that existed at the time of importation and not due to damage

occurring after importation of those vehicles.

2007-1518 16
 We conclude that the Court of International Trade did not err in concluding that

Volkswagen’s warranty evidence was insufficient to prove by a preponderance of the

evidence that the warranty repair claims for alleged manufacturing defects existed at the

time of importation. 5

B

We turn next to the category of warranty repairs made in response to

government-mandated recalls. Volkswagen contends that the repairs that it was

required to make pursuant to government-mandated recalls by definition were made

only to correct design defects and were not made to correct post-importation damage.

Volkswagen argues that Exhibit A, which specifies the claimed repairs that were made

pursuant to recalls, establishes that the recall repairs were made on latent defects.

The government argues that the Court of International Trade properly held that

such design defects do not qualify because the vehicles were “manufactured exactly as

to the construction specifications requested by Volkswagen.” J.A. at 17 n.10. In other

words, the government argues that Volkswagen contracted to buy vehicles that were

defective by government standards or non-compliant with government safety

regulations.

The Court of International Trade appeared to agree with the government,

drawing a distinction between manufacturing defects and design defects. With respect

5
Volkswagen also appears to argue that the repairs identified as being
made before the in-service date are similar to the port repairs held in Saab to be
sufficient, given their close proximity to the importation date. We reject this argument.
There is no indication that in-service repairs are made almost immediately after
importation, as are the port repairs. Absent that critical fact, we cannot say that the in-
service repairs are sufficient.

2007-1518 17
to manufacturing defects, the Court of International Trade found that “Volkswagen has

already successfully established that it contracted for ‘defect-free’ merchandise.” J.A. at

13 n.7. On the other hand, the Court of International Trade found that Volkswagen did

contract for merchandise having design defects in holding that Volkswagen’s safety

recall repairs did not qualify. With respect to recall repairs, the Court of International

Trade concluded that:

[R]ecall repairs are not ‘by definition’ repairs of damage that existed at
importation, because when the vehicle was ordered and imported, it may
have been manufactured exactly to the construction specifications
requested by Volkswagen. If this is the case, the vehicle was not damaged
at the time of importation. Thus, the Court cannot conclude simply from
the evidence before it that repairs done pursuant to a recall constitute
evidence of damage that existed at the time of importation.

J.A. at 17 n.10 (emphasis added). The Court of International Trade thus appeared to

agree with the government that Volkswagen ordered and imported vehicles containing

design defects. We review the interpretation of a contract—a question of law—without

deference. Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231 (Fed. Cir. 2007).

In Samsung, we found that the district court improperly interpreted the sales

contract as an agreement that the buyer ordered both defect-free and defective

merchandise. 106 F.3d at 380. We recognized that “Samsung paid for defect-free

merchandise, and that is, through reimbursement, what Samsung effectively received.”

Id. We did not make the distinction between manufacturing defects and design defects

in Samsung that the Court of International Trade made here.

We conclude that the Court of International Trade wrongly interpreted the

importation sales agreements in finding that Volkswagen contracted to buy vehicles with

design defects. With respect to the manufacturers’ contractual obligations, the

2007-1518 18
contracts do not distinguish between manufacturing defects and design defects.

Volkswagen ordered and paid for defect-free vehicles—defects that were either design

defects or manufacturing defects. We therefore reject the government’s argument that

Volkswagen contracted to import vehicles with design defects, and hold that the Court

of International Trade erred in holding that design defects were not covered.

Absent the contractual theory that Volkswagen sought and paid for defective

vehicles, the government does not suggest that the evidence of a government ordered

recall is not sufficient to establish that the defect existed at the time of importation.

Indeed, the statute suggests that U.S. government ordered safety recalls only

cover defects that existed at the time of importation. 49 U.S.C. § 30112(a) prohibits the

importation of vehicles that do not comply with applicable safety standards set by the

National Highway Traffic Safety Administration. Accordingly, any imported vehicle must

be certified to be in compliance with all safety standards and regulations in effect at the

time of importation. See 49 U.S.C. § 30115.

The enforcement provisions of the motor vehicle safety statute require a

manufacturer of the defective equipment to remedy the defect or the noncompliance

without charge. Id. § 30116. A “manufacturer” is defined to include one who “import[s]

motor vehicles” for resale. Id. § 30102. Thus, the statute is written to remedy design

defects involving the failure to comply with government mandated safety statutes—

defects that existed at the time the vehicle was imported into the United States.

This category of claims is similar to the “port repair” claims at issue in Saab.

There, we explained that evidence identifying such “port repair” claims—defined as

repairs made almost immediately after importation—sufficiently established that the

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repaired defects existed at the time of importation, given “the proximity of the port

repairs to the time of importation.” Saab, 434 F.3d at 1374. Similarly, the very nature of

a government mandated safety recall establishes the high likelihood that any defects

repaired pursuant to the recall existed at the time of importation.

In addition to the federal law safety recalls, Volkswagen’s warranty repairs

included repairs made pursuant to state law emissions recalls, including, for example,

categories of “49 state emissions claim,” “California emissions claim,” and “California

Diesel Emissions claim.” J.A. at 89. It also included a claim for “FTC claim[s]”—a

category that the parties have not explained. Id. The parties have not briefed whether

these state recalls and the FTC recall also relate to latent defects existing at the time of

importation. We do not decide whether the circumstances of the state law recalls and

the FTC recall exhibit the same reliability that the subject defects existed at the time of

importation into the United States. We therefore remand to the Court of International

Trade to determine in the first instance whether those recalls are more likely than not

concerned with latent defects present in vehicles at the time of importation.

III

Volkswagen alternatively asserts that it is entitled to an exclusion from the

entered value of the imported vehicles, pursuant to 19 U.S.C. § 1401a(b)(3)(A)(i). That

statute provides:

The transaction value of imported merchandise does not include any of
the following, if identified separately from the price actually paid or payable
and from any cost or other item referred to in paragraph (1):

(A) Any reasonable cost or charge that is incurred for—

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 (i) the construction, erection, assembly, or maintenance of, or the
technical assistance provided with respect to, the merchandise after its
importation into the United States;

19 U.S.C. § 1401a(b)(3) (emphasis added). Volkswagen maintains that its warranty

repairs constitute post-importation “maintenance” that should be deducted from the

dutiable value of the imported vehicles. Volkswagen did not assert this claim before the

Court of International Trade, and the Court of International Trade did not initially

address the claim. Instead, Volkswagen first asserted that claim to the Court of

International Trade in its motion for rehearing. The Court of International Trade denied

Volkswagen’s motion and refused to consider Volkswagen’s alternative theory that it is

entitled to an exclusion under § 1401a.

On appeal, the government maintains that the § 1401a exclusion claim was not

properly asserted below, and therefore is not properly before this court on appeal. We

agree. Although it is clear that Volkswagen did assert a § 1401a(b)(3)(A)(i) claim in its

protest to Customs, it did not assert that claim in the civil action it filed at the Court of

International Trade. Nowhere in its complaint to that court does Volkswagen refer to a

claim that its warranty repairs constitute maintenance costs under § 1401a(b)(3)(A)(i).

Volkswagen does not dispute this procedural history, but rather asserts that our earlier

decision in Samsung precluded it from pleading this alternative claim for relief.

Volkswagen urges that it was required to proceed first with its § 158.12 allowance claim

and then, only after its § 158.12 claim was rejected, could it have moved forward with its

§ 1401a claim. Volkswagen’s argument is without merit. Nothing in Samsung suggests

any such requirement. We conclude that Volkswagen’s § 1401a maintenance claim

was not properly raised below and has therefore been waived.

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 CONCLUSION

We therefore affirm-in-part, reverse-in-part, and remand for further proceedings

consistent with this opinion.

AFFIRMED-IN-PART, REVERSED-IN-PART, AND REMANDED

No costs.

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