United States v. Ford Motor Co.

United States Court of Appeals for the Federal Circuit

2006-1479

UNITED STATES,

Plaintiff-Appellant,

v.

FORD MOTOR COMPANY,

Defendant-Appellee.

David A. Levitt, Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued for plaintiff-appellant. With him
on the brief were Peter D. Keisler, Assistant Attorney General, and Patricia M. McCarthy,
Assistant Director. Of counsel on the brief was Kathleen Bucholtz, Attorney, United
States Customs and Border Protection, of Chicago, Illinois.

Charles J. Cooper, Cooper & Kirk PLLC, of Washington, DC, argued for
defendant-appellee. With him on the brief were Vincent J. Colatriano and Nicole Jo
Moss. Of counsel on the brief were Robert B. Silverman, David M. Murphy, and Frances
P. Hadfield, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP, of New York, New
York; and Paulsen K. Vandevert, Ford Motor Company, of Dearborn, Michigan.

Appealed from: United States Court of International Trade

Senior Judge Nicholas Tsoucalas
 United States Court of Appeals for the Federal Circuit

2006-1479

UNITED STATES,

Plaintiff-Appellant,

v.

FORD MOTOR COMPANY,

Defendant-Appellee.
__________________________

DECIDED: August 17, 2007
__________________________

Before SCHALL, Circuit Judge, ARCHER, Senior Circuit Judge, and GAJARSA, Circuit
Judge.

GAJARSA, Circuit Judge.

This is a waiver and issue preclusion case. The issues before us are whether

the government was required to accept Ford Motor Company’s (“Ford”) waiver of a

statute of limitations defense in order for the waiver to take effect and whether the

government is barred by issue preclusion from pursuing its claims for civil penalties

pursuant to 19 U.S.C. § 1592 for Ford’s alleged fraud. Because we find that the

government’s claims are not barred by the statute of limitations in 19 U.S.C. § 1621 or

by our decision in Ford IV, we vacate the Court of International Trade’s decision to

dismiss Counts I, II, and III of the government’s complaint. However, because the

government was not deprived of any lawful duties by Ford’s allegedly unlawful conduct
as required by § 1592(d), we affirm the Court of International Trade’s dismissal of Count

IV of the government’s complaint.

I. BACKGROUND

This appeal derives from a dispute involving import duties at Ford’s Foreign

Trade Subzone (“FTSZ”) 1 in Louisville, Kentucky. The relevant facts are set forth in one

of our previous opinions in this case, Ford v. Motor Co. v. United States, 286 F.3d 1335,

1336-39 (Fed. Cir. 2002) (“Ford IV”). Ford’s Louisville FTSZ operated for three months,

between November of 1985 and February of 1986. During those three months, Ford

received eleven entries of engines and transmissions from abroad. The engines and

transmissions could be used interchangeably for cars and trucks. The merchandise

was incorporated into finished cars and trucks at Ford’s assembly plant located within

the Louisville FTSZ, and the finished cars and trucks were subsequently withdrawn for

entry into the United States.

In 1985 and 1986, the duty rate for foreign-made engines and transmissions was

3.3% ad valorem, the duty rate on finished imported cars was 2.6% ad valorem, and the

duty rate on finished imported trucks was 25% ad valorem. By establishing its Louisville

FTSZ, Ford intended to take advantage of the duty differential between the

unassembled car and truck parts and the assembled cars and trucks. Under the duty

rates in place when Ford entered its merchandise, the optimal strategy for Ford was to

import engines and transmissions into its Louisville FTSZ and then separate the

1
A FTSZ is an area inside the United States that may receive treatment
under the Customs laws as a territory outside the United States. At the FTSZ, importers
can choose to pay duties on goods either at the rate applicable to the foreign
merchandise in its condition as admitted into a zone, or if used in manufacturing or

2006-1479 2
merchandise used for cars from the merchandise used for trucks. In order for Ford to

receive the benefit of the duty rates applicable to its FTSZ, the regulations required Ford

to file Customs Form 214 designating each part entering the Louisville FTSZ as either a

car part or a truck part. After making the designations, Ford could then pay duties on

truck parts as they entered the FTSZ at the duty rate of 3.3% ad valorem, thereby

avoiding the 25% duty rate for assembled trucks. Ford could also defer paying duties

on car parts until the assembled car emerged from the plant, at which time Ford could

pay the duty rate for the assembled car of 2.6% ad valorem, applying that rate to the car

parts. 2

However, when Ford filled out Customs Form 214, it incorrectly designated that

each transmission and engine imported into the Louisville FTSZ was a part for an

assembled car product. Consequently, for all eleven entries, Ford paid an estimated

duty rate on the basis of the 2.6% ad valorem rate for car parts. Thus, to the extent that

it meant to treat any of its entries as unassembled truck parts in order to receive the

benefit of the 3.3% duty rate as opposed to the 25% duty rate, Ford failed to pay duties

for any truck parts, as required by the regulations. See 19 C.F.R. § 146.22.

processing, the rate applicable to the emerging product. See Ford Motor Co. v. United
States, 286 F.3d 1335, 1336-37 (Fed. Cir. 2002).
2
For example, if an engine with a value of $1000 is treated as a truck part,
Ford would pay a duty of $33 when the engine entered the FTSZ; if the engine is
treated as a “completed car” Ford would pay a duty of $26 when the finished car
entered domestic commerce. See Ford Motor Co. v. United States, 157 F.3d 849, 852
(Fed. Cir. 1998) (“Ford could pay the duty rate of 2.6% (for completed cars) on the
imported engines and transmissions for cars, and could continue paying the duty rate of
3.3% on the imported parts for trucks.”); 15 C.F.R. § 400.1(c) (“[T]he importer ordinarily
has a choice of paying duties either at the rate applicable to the foreign material in its
condition as admitted into a zone, or if used in manufacturing or processing, to the
emerging product.”) (emphasis added).

2006-1479 3
 Ford reported its error to Customs. In July of 1986, Customs concluded that the

proper duty rate on the truck parts received at Ford’s FTSZ was the 25% ad valorem

duty rate applicable to assembled trucks. As a result, Customs found that Ford owed

approximately $5.3 million in additional duties. Customs also referred Ford’s error to its

fraud investigation office.

In August of 1986, pursuant to 19 U.S.C. § 1592, Customs initiated a civil fraud

investigation, which continued until at least March of 1990. On the basis of its ongoing

fraud investigation, Customs issued three one-year extensions of the statutory one-year

liquidation deadline as permitted under 19 U.S.C. § 1504(b). Pursuant to 19 U.S.C.

§ 1504(a), an entry of merchandise that Customs does not liquidate within one year of

the date of entry is deemed liquidated by operation of law at the rate of duty asserted by

the importer at the time of entry unless Customs properly extends the limitations period

as provided by 19 U.S.C. § 1504(b). Almost four years after Ford’s eleventh entry, on

December 1, 1989, Customs liquidated the merchandise designated by Ford as truck

parts in its eleven entries at the duty rate of 25% ad valorem, applicable to assembled

trucks.

Ford timely protested the liquidations, contending that because Customs’ three

liquidation extensions were not “reasonable” as required by 19 U.S.C. § 1504(b), the

eleven entries of engines and transmissions were deemed liquidated by operation of law

at the duty rate asserted on importation, 3.3% ad valorem. Customs denied Ford’s

protest, and Ford timely paid the $5.3 million in additional duties and initiated an action

in the Court of International Trade, challenging the liquidations. See Ford IV 286 F.3d

at 1338-39.

2006-1479 4
 In Ford IV, we reversed the Court of International Trade’s holding in favor of the

government, which held that the government’s manner of conducting the fraud

investigation and the length of the investigation were both reasonable. We reversed the

Court of International Trade, holding that the liquidations were not properly extended

under § 1504(b) because “Customs’ delay in pursuing the fraud investigation and its

resulting delay in liquidating the entries were not reasonable.” Id. at 1341. We found

that Customs’ fraud investigation had taken a total of 44 months (from August of 1986

until March of 1990). We concluded that the 44-month long investigation was

unreasonable in this case because the government did almost no substantive work

during the first 30 months of the 44 months and because there were two periods of

inactivity totaling 22 months. Id. at 1343. Moreover, we found that it was during the 30-

month period of almost no activity that Customs had issued all three extensions of

liquidation under § 1504(b)(1). Id. For these reasons, we held that Customs’ delay was

unreasonable and that Customs had not properly extended the liquidation of Ford’s

eleven entries. Id. As a result, we held that Ford’s eleven entries were deemed

liquidated under 19 U.S.C. § 1504(a) and that Customs was therefore required to return

the $5.3 million of additional duties to Ford. Id. at 1343.

During the lengthy liquidation proceedings, Ford drafted ten consecutive letters

waiving the statute of limitations period in 19 U.S.C. § 1621, which applies to

government actions under 19 U.S.C. § 1592. The first nine waiver letters were dated

between November 5, 1990 and February 15, 2002. Each waiver letter contained a

signature line for Customs to “acknowledge receipt and acceptance” of the waiver

pursuant to Treasury Decision 90-11. Customs signed the first nine waivers. In the

tenth waiver letter, however, Customs crossed out the words “and acceptance” and sent

2006-1479 5
Ford a follow-up letter explaining its new procedure to “only acknowledge receipt of

waivers.” Ford’s tenth waiver letter extended the statute of limitations for 24 months

until April 7, 2005.

On April 6, 2005, the government filed a § 1592 action against Ford in the Court

of International Trade. Counts I through III of the government’s complaint sought civil

penalties based on fraud, gross negligence, and negligence pursuant to § 1592(c).

Count IV sought “the restoration of lawful duties of which the United States has been

deprived, in the amount of $5,275,329” pursuant to § 1592(d). Ford filed a Rule 12(b)

motion to dismiss the government’s complaint for failure to state a claim upon which

relief can be granted based on: 1) the government’s failure to accept Ford’s tenth waiver

thereby letting the statute of limitations expire; and 2) issue preclusion in light of our

decision in Ford IV.

The Court of International Trade granted Ford’s motion to dismiss, agreeing with

Ford on both grounds. United States v. Ford Motor Co., 414 F. Supp. 2d 1264, 1270-71

(Ct. Int’l Trade 2006). The Court of International Trade held that the statute of

limitations in § 1621 had expired, and therefore, the government’s § 1592 claims were

extinguished as a matter of law. Id. at 1271. The Court of International Trade also held

that notwithstanding the expiration of the statute of limitations, the government was still

not entitled to a repayment of the $5.3 million in duties under 19 U.S.C. § 1592(d)

because the government’s request matched the dollar amount that this court in Ford IV

ordered to be refunded to Ford and because this court in Ford IV had found that

Customs was not entitled to any additional duties beyond the duties assessed by the

deemed liquidation statute, 19 U.S.C. § 1504(a). Id.

2006-1479 6
 The Court of International Trade entered final judgment on January 13, 2006,

dismissing the government’s complaint for failure to state a claim upon which relief may

be granted. On April 18, 2006, the Court of International Trade denied the

government’s motion for reconsideration. We have jurisdiction pursuant to 28 U.S.C.

§ 1295(a)(5).

II. ANALYSIS

We review de novo the Court of International Trade’s decision to dismiss a

complaint for failure to state a claim upon which relief may be granted. Cf. N.Z. Lamb

Co. v. United States, 40 F.3d 377, 380 (Fed. Cir. 1994) (reviewing de novo a motion for

judgment on the pleadings). Accordingly, this court reviews the record and will not

dismiss a complaint for failure to state a claim upon which relief may be granted unless

it appears beyond doubt that the complaining party can prove no set of facts in support

of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46

(1957). In reviewing a motion to dismiss based on the pleadings, this court must accept

all well-pleaded facts as true and view them in the light most favorable to the non-

moving party. See Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991).

A. Waiver

Ford argues that the government’s complaint should be dismissed because the

statute of limitations has run on both claims for penalties and for duties. Ford asserts

that Customs refused to accept its tenth waiver by striking the words “and accepted”

from the waiver. Because Ford’s tenth waiver was not effective and because Ford’s

ninth waiver expired on April 7, 2003, two years before the government filed its § 1592

complaint, Ford contends that the government’s complaint is barred by the statute of

limitations.

2006-1479 7
 Ford’s argument is based on the assumption that its waiver letter was an offer

that had to be “accepted” by the government. The Supreme Court, however, has clearly

stated, “a waiver is not a contract.” Stange v. United States, 282 U.S. 270, 276 (1931)

(citing to Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453, 466 (1930)).

Rather, a waiver is “a voluntary, unilateral waiver of a defense.” Id. (concluding that the

insertion of an agency’s signature was not intended to convert a waiver into a contract,

but instead, to serve a purely administrative function).

Ford stated in its tenth waiver letter that it “knowingly and voluntarily” “waive[d]

the period of limitations contained in title 19, United States Code, section 1621 . . . with

respect to the eleven (11) Customs entries . . . for a period of twenty-four (24) months,

commencing April 7, 2003, or until April 7, 2005.” JA 400082. Ford further agreed to

“not assert any statute(s) of limitations defense in any section 1592 action brought by

the United States Government concerning the referenced eleven (11) entries with

respect to the twenty-four (24) month period for which the statute of limitations is hereby

waived.” JA 400081.

We hold that Ford’s tenth waiver was an express, voluntary, and unilateral act

that alone was sufficient to extend the § 1621 statute of limitations period until April 7,

2005. The government’s acknowledgement or acceptance of Ford’s waiver was not

required to give effect to Ford’s waiver of the statute of limitations defense. Accordingly,

we reverse the Court of International Trade and hold that the statute of limitations does

not bar the government from properly pursuing its § 1592 claims.

2006-1479 8
 B. Issue Preclusion

Ford’s second argument is based on issue preclusion. More specifically, Ford

contends that the government is barred from pursuing its § 1592 claims because of the

preclusive effect of this court’s decision in Ford IV. Ford argues that even though the

government’s complaint arises under 19 U.S.C. § 1592 as a claim for penalties and

duties and does not arise as an importer’s claim for duty refunds under 19 U.S.C.

§ 1514 as was Ford’s action in Ford IV, the operative facts between both the prior and

the current actions are essentially the same. Ford concludes that the government is

therefore barred by issue preclusion because the present case would entail relitigating

prior findings and holdings. Ford argues that if this court supposed that Customs’

§ 1592 claims had merit, we would not have ordered a duty refund in Ford IV. Ford

speculates that the only reasonable conclusion to be drawn from Ford IV is that this

court intended not only to award Ford a duty refund, but to preclude the present penalty

action. We disagree.

In Ford IV, our holding was limited to the issue in that case—whether the

government had properly extended the one-year liquidation deadline pursuant to

§ 1504(b). We found that because the government had extensively delayed its

investigation of Ford’s alleged fraud, both the manner and length of time of the

government’s fraud investigation were unreasonable. Ford IV, 286 F.3d at 1343.

Consequently, we held that the government had not properly extended the liquidation of

Ford’s eleven entries under § 1504(b) and that the entries were therefore deemed

liquidated pursuant to 19 U.S.C. § 1504(a).

Nowhere in Ford IV did this court address the merits of the government’s § 1592

claims. See id. at 1335-43. Ford IV simply decided that because of the government’s

2006-1479 9
unreasonable delay, Ford’s eleven entries were deemed liquidated by operation of law

under § 1504. As an appeals court, “this court does not review that which was not

presented to the [trial] court.” Sage Prod., Inc. v. Devon Indus. Inc., 126 F.3d 1420,

1426 (Fed. Cir. 1997). The complaint in Ford IV was filed by Ford, not the government,

pursuant to 19 U.S.C. § 1514, which is the provision provided to importers to challenge

Customs’ liquidations. In its § 1514 complaint, which this court reviewed in Ford IV,

Ford sought to recover the approximately $5.3 million it paid to the government as

allegedly excess duties. Ford IV, 286 F.3d at 1336. On appeal, therefore, the only

issue before this court in Ford IV was the issue of whether Customs had properly

liquidated Ford’s eleven entries. Because this court in Ford IV did not address any of

the merits of the government’s § 1592 claims in any respect, the government is not

precluded by Ford IV from pursuing its claims at the Court of International Trade. Thus,

the Court of International Trade erred in as much as it dismissed the government’s

§ 1592 claims on the preclusive effect of the issues litigated in Ford IV.

C. Statutory Construction

Even though the government is not barred by the statute of limitations or by this

court’s decision in Ford IV from pursuing its § 1592 claims, the government is barred

from recovering the $5.3 million in additional duties alleged in Count IV of its complaint

pursuant to § 1592(d).

To understand why the government is barred from recovering duties under

§ 1592(d), it is helpful to look at the statutory provisions set forth in 19 U.S.C. § 1592.

Subsection (a) prohibits entry of merchandise into the United States “by fraud, gross

negligence, or negligence” by submission of materially false information regardless of

whether the government is deprived of duties. Subsections (c)(1), (c)(2), and (c)(3) set

2006-1479 10
out the maximum civil penalties imposed on an importer based upon fraud, gross

negligence, or negligence. Subsection (d) mandates:

Notwithstanding section 1514 of this title, if the United States has been
deprived of lawful duties, taxes, or fees as a result of a violation of
subsection (a) of this section, the Customs Service shall require that such
lawful duties, taxes, and fees be restored, whether or not a monetary
penalty is assessed.

19 U.S.C. § 1592(d) (emphasis added). Thus, if the court finds a violation of § 1592 (a),

the government can seek two types of money damages: 1) civil penalties pursuant to

§ 1592(c); and 2) a restoration of any lawful duties pursuant to § 1592(d).

The government’s complaint includes four counts all based on the allegation that

Ford violated § 1592(a) by acting fraudulently, grossly negligently, and negligently with

respect to the eleven entries. See Complaint at ¶¶ 20-30. Counts I-III request civil

penalties as set forth in §§ 1592(c)(1), (c)(2), and (c)(3). Id. at ¶¶ 20-28. Count IV

requests a restoration of the approximately $5.3 million in additional duties, which the

government alleges it was deprived of by Ford’s allegedly unlawful conduct. Id. at ¶¶

29-30.

However, because Ford’s eleven entries were deemed liquidated by operation of

law, the government is precluded from recovering any duties beyond the duties it is

permitted to recover pursuant to § 1504. Section 1592(d) limits the government’s

recovery of lawful duties to those duties that it was deprived of “as a result of” a violation

of § 1592(a). In this case, however, the $5.3 million in duties the government claims it

is entitled to collect pursuant to § 1592(d) are the duties that this court determined were

unlawful by operation of § 1504. See Ford IV, 286 F.3d at 1343.

In Ford IV, we held that the $5.3 million that Ford had paid to Customs in

additional duties were unlawful duties because Ford’s entries had been deemed

2006-1479 11
liquidated by operation of law pursuant to § 1504. As a result, we concluded that

Customs was only permitted to collect the amount of duties asserted upon Ford’s

merchandise at the time of entry into the United States. We held that Ford’s entries had

been deemed liquidated despite Customs’ attempt to extend the one-year liquidation

deadline because Customs’ had improperly extended the one-year statute of limitations

by unreasonably delaying its fraud investigation.

Thus, under § 1592(d), the government has not been “deprived of lawful duties,

taxes, or fees as a result of a violation of subsection (a).” 19 U.S.C. § 1592(d)

(emphasis added). Rather, the government has been deprived of the $5.3 million in

duties it seeks by operation of § 1504. If anything, the government’s own delay in

pursuing its fraud investigation against Ford has deprived it of a claim under § 1592(d).

III. CONCLUSION

For the foregoing reasons, we hold that the government’s § 1592 claims are not

barred by the statute of limitations in § 1621 or by our decision in Ford IV. Thus, we

vacate the Court of International Trade’s decision to dismiss Counts I, II, and III of the

government’s complaint, and we remand these Counts to the Court of International

Trade for a determination of the merits. However, because the government was not

deprived of any lawful duties by Ford’s allegedly unlawful conduct as required by

§ 1592(d), we affirm the Court of International Trade’s dismissal of Count IV of the

government’s complaint.

VACATED-IN-PART, AFFIRMED-IN-PART, and REMANDED

No costs.

2006-1479 12