United States v. National Semiconductor Corp.

United States Court of Appeals for the Federal Circuit

2007-1007

UNITED STATES,

Plaintiff-Appellee,

v.

NATIONAL SEMICONDUCTOR CORPORATION,

Defendant-Appellant.

Stephen C. Tosini, Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued for plaintiff-appellee. With him
on the brief were Peter D. Keisler, Assistant Attorney General, Jeanne E. Davidson,
Acting Director, and Patricia M. McCarthy, Assistant Director.

Robert Scott Whiteley, Horton, Whiteley & Cooper, of Oakland, California, argued
for defendant-appellant. With him on the brief was Craig A. Mitchell.

John M. Peterson, Neville Peterson LLP, of New York, New York, for amicus
curiae, American Association of Exporters and Importers. With him on the brief were
Curtis W. Knauss and Maria E. Celis.

Appealed from: United States Court of International Trade

Senior Judge R. Kenton Musgrave
 United States Court of Appeals for the Federal Circuit

2007-1007

UNITED STATES,

Plaintiff-Appellee,

v.

NATIONAL SEMICONDUCTOR CORPORATION,

Defendant-Appellant.

DECIDED: July 27, 2007

Before MAYER, SCHALL, and PROST, Circuit Judges.

SCHALL, Circuit Judge.

National Semiconductor Corporation (“NSC”) appeals the final judgment of the

United States Court of International Trade awarding the United States (1) a penalty

award in the amount of $10,000 under 19 U.S.C. § 1592(c)(4); (2) compensatory

interest in the amount of $250,840.21 under 19 U.S.C. § 1505(c); and (3) prejudgment

interest on the amounts in (1) and (2). See United States v. Nat’l Semiconductor Corp.,

No. 03-00223, 2006 WL 2578215 (Ct. Int’l Trade Sept. 8, 2006) (NSC III). The court

entered judgment in favor of the United States based on NSC having made erroneous

statements in entry documents when entering merchandise into the United States. NSC
voluntarily disclosed the erroneous statements to Customs and Border Protection

(“Customs”) when it discovered them.

Because the Court of International Trade erred in reaching beyond the penalty

provision of 19 U.S.C. § 1592(c)(4) to award compensatory interest under 19 U.S.C.

§ 1505(c), we vacate the court’s judgment and remand the case to the court. On

remand, the Court of International Trade is to determine (i) the appropriate penalty due

under section 1592(c)(4) in the absence of a compensatory interest award and (ii)

whether prejudgment interest may be awarded on that penalty.

BACKGROUND

I.

Following an internal customs compliance review, NSC discovered that it had

undervalued certain integrated circuits, micro-assemblies, and parts thereof when these

items were entered into the United States. NSC determined that this undervaluation

resulted in two groups of erroneous customs entries pertaining to importations between

1993 and 2000. While the erroneous entries did not result in a loss of duties to the

United States, they did result in unpaid merchandise processing fees (“MPFs”). 1 Prior

to Customs discovering the errors, NSC voluntarily disclosed them and timely tendered

the $948,159.13 in unpaid MPFs that Customs determined was due.

1
An MPF is an ad valorem tax on imported merchandise.

2007-1007 2
 Customs accepted the tender, but determined that negligent violations of 19

U.S.C. § 1592(a) were the cause of each erroneous entry. 2 Pursuant to 19 U.S.C.

§ 1592(c)(4), Customs may assess penalties for violations of section 1592(a). Section

1592(c)(4) states in relevant part:

(c) Maximum penalties

....

(4) Prior disclosure

If the person concerned discloses the circumstances of a violation of
subsection (a) of this section before, or without knowledge of, the
commencement of a formal investigation of such violation, with respect
to such violation, merchandise shall not be seized and any monetary
penalty to be assessed under subsection (c) of this section shall not
exceed⎯

....

(B) if such violation resulted from negligence or gross negligence, the
interest (computed from the date of liquidation at the prevailing rate of
interest applied under section 6621 of Title 26) on the amount of
lawful duties, taxes, and fees of which the United States is or may be
deprived so long as such person tenders the unpaid amount of the
lawful duties, taxes, and fees at the time of disclosure, or within 30
days (or such longer period as the Customs Service may provide)
after notice by the Customs Service of its calculation of such unpaid
amount.

(emphases added). In due course, Customs sent notices to NSC assessing the

maximum statutory penalty it could assess under section 1592(c)(4) for each

2
Section 1592(a)(1) states:

Without regard to whether the United States is or may be deprived of all or
a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross
negligence, or negligence⎯
(A) may enter, introduce, or attempt to enter or introduce any
merchandise into the commerce of the United States by means of⎯
(i) any document or electronically transmitted data or information,
written or oral statement, or act which is material and false . . . .

2007-1007 3
violation⎯interest from the date of liquidation on the amount of the fees of which the

United States had been deprived. This was calculated by Customs to be $228,924.75

and $21,915.46, respectively, for the two groups of entries. NSC protested the

assessment. While acknowledging that it had been negligent, it took the position that it

should not be assessed the maximum penalty because it had acted responsibly by

voluntarily reporting the erroneous entries on its own initiative before Customs

discovered them. Following NSC’s protest, the government brought suit in the Court of

International Trade seeking to collect the $250,840.21 penalty ($228,924.75 plus

$21,915.46) it had assessed against NSC for violation of section 1592(a).

II.

Eventually, the parties filed cross-motions for summary judgment, which the

Court of International Trade denied in United States v. National Semiconductor Corp.,

No. 03-00223, 2005 WL 189748 (Ct. Int’l Trade Jan. 26, 2005) (NSC I). Thereafter,

following a bench trial, the court issued a decision in which it considered each of the

fourteen non-exclusive factors discussed in United States v. Complex Machine Works

Co., 83 F. Supp. 2d 1307 (Ct. Int’l Trade 1999). United States v. Nat’l Semiconductor

Corp., No. 03-00223, 2006 WL 1663279 (Ct. Int’l Trade June 16, 2006) (NSC II). These

are factors the Court of International Trade may consider when determining the

appropriateness of a civil penalty for a violation of customs laws. See id. at *2. The

Complex Machine Works factors are

(1) the defendant’s good faith effort to comply with the statute; (2) the
degree of culpability involved; (3) the defendant’s history of previous
violations; (4) the nature of the public interest in ensuring compliance with
the applicable law; (5) the nature and circumstances of the violation; (6)
the gravity of the violation; (7) the defendant’s ability to pay; (8) the
appropriateness of the size of the penalty vis-à-vis the defendant’s

2007-1007 4
 business and the effect of the penalty on the defendant’s ability to
continue doing business; (9) the economic benefit gained by the
defendant through the violation; (10) whether the party sought to be
protected by the statute is elsewhere adequately compensated for the
harm; (11) the degree of harm to the public; (12) the value of vindicating
agency authority; (13) whether the penalty shocks the conscience of the
court; and (14) such other matters as justice may require.

Complex Mach. Works, 83 F. Supp. 2d at 1315. After considering each factor

individually, the court determined that partial mitigation was appropriate. It therefore

awarded the government an “interest-only” penalty of $10,000, calculated in accordance

with section 1592(c)(4) from the original date of liquidation to the date of the demand

that Customs issued to NSC. NSC II, 2006 WL 1663279 at *2-6.

In its decision, the Court of International Trade determined that the tenth

Complex Machine Works factor⎯whether the party sought to be protected by the

statute is elsewhere adequately compensated for the harm⎯deserved the heaviest

weighting. Id. at *4. The court concluded that NSC’s payment of the unpaid MPFs and

the imposition of the maximum allowable penalty ($250,840.21) did not fully

compensate the government for the full harm done because the government would not

recoup the interest it would have been able to earn on the MPFs had they been paid at

the proper time. Id. The court reasoned that the maximum allowable penalty under

section 1592(c)(4) would, at most, equal interest on the unpaid MPFs from the date of

liquidation to the time of payment. This, the court determined, still would leave the

government without compensation for the interest it could have earned from the date of

entry until the date of liquidation. Accordingly, the court found,

2007-1007 5
 as a matter of fact, that compensatory interest would make the
government whole, and that the government is entitled to it in accordance
with 19 U.S.C. § 1505(c). That provision requires interest to be assessed
on underpayments or overpayments from the date of entry to the date of
“liquidation or reliquidation.”

Id.

In order to calculate its award of compensatory interest, the Court of International

Trade found it necessary to determine the “reliquidation” date. This was because the

court reasoned that where a further disposition is necessary to correct negligence in an

original entry, the disposition amounts to a “reliquidation” of the entry as a matter of law.

Id. at *5. Therefore, in this case, Customs’ acceptance of the amounts tendered by

NSC as repayment of underpaid MPFs amounted to a “reliquidation” of those entries.

Consequently, the court determined that the government was entitled to a total award

composed of $10,000 as a penalty under section 1592(c)(4) and compensatory interest

under section 1505(c). 3 Id. at *6.

NSC filed a motion for reconsideration, asking the Court of International Trade to

eliminate the compensatory interest award of NSC II as without a proper statutory basis,

and to enter judgment solely for a $10,000 penalty. NSC III, 2006 WL 2578215 at *1.

For its part, the government agreed with the court that it should be made as close to

whole as possible. However, the government asked the court to clarify its judgment by
3
The court’s opinion in NSC II does not specify the amount of the
compensatory interest award. NSC II does specify that the government is entitled to
compensatory interest “in accordance with 19 U.S.C. § 1505(c).” NSC II, 2006 WL
1663279 at *6. Section 1505(c) states that “interest shall accrue, at a rate determined
by the Secretary, from the date the importer of record is required to deposit estimated
duties fees, and interest, to the date of liquidation or reliquidation of the applicable entry
to reconciliation.” The court did determine that the reliquidation date was the date
Customs accepted the unpaid MPFs. Presumably, the calculation of the compensatory
interest award was left to Customs to determine based on the “rate determined by the
Secretary” in accordance with the statute.

2007-1007 6
noting that the final amount due was capped by the accrued interest on the unpaid

MPFs from the date of liquidation until the date of tender, in accordance with the penalty

limitation in 19 U.S.C. § 1592(c)(4)(B). Id. at *3-4. The government also asked for

prejudgment interest on that amount. Id. at *4. Responding to the government’s

request, the Court of International Trade stated: “[T]he Secretary of the Treasury has

discretion over the calculation of Customs’ compensatory interest . . . and if the

government is content to regard a lesser amount as ‘full’ compensation of the U.S.

Treasury . . . then so be it.” Id. at *4. Accordingly, the court assented to the

government’s request and found modification of the compensatory interest award to the

certain amount of $250,840.21 to be “adequate” compensation for purposes of the tenth

Complex Machine Works factor. Id. Accordingly, the court entered final judgment in the

amount of $260,840.21 ($250,840.21 in compensatory interest under section 1505(c)

and $10,000 as a penalty award under section 1592(c)(4)) plus prejudgment interest. 4

Id.

NSC now appeals from this judgment. We have jurisdiction over an appeal from

a final decision of the Court of International Trade pursuant to 28 U.S.C. § 1295(a)(3).

4
There is some disagreement between the parties as to whether the final
judgment that was entered by the Court of International Trade includes the $10,000 that
was awarded as a penalty. However, our reading of the record is that the award of
$10,000 was made and that the court declined to disturb that award when it modified
the compensatory interest award from the amount calculated according to section
1505(c) to $250,840.21. This matter can be resolved on remand.

2007-1007 7
 DISCUSSION

I.

NSC argues that the Court of International Trade abused its discretion in

awarding non-penal “compensatory interest” under 19 U.S.C. § 1505(c) in an action to

collect an interest penalty pursuant to the prior disclosure statute, 19 U.S.C. § 1592.

NSC contends that section 1592(c)(4)(B) itself does not provide for collection of interest,

but rather uses interest only as a basis to set forth the maximum allowable penalty, i.e.,

no penalty amount may exceed the amount of that interest. NSC urges that section

1505(c) does not provide for collection of interest either, but rather prescribes the rate at

which interest shall accrue, and the period of accrual, in cases where the amount of

duties, taxes, and fees assessed upon liquidation of an entry differs from the amount

deposited at the time of entry. NSC notes that section 1505(c) is not applicable outside

the context of a liquidation or reliquidation and asserts that there is no support for the

Court of International Trade’s determination that Customs’ acceptance of the underpaid

MPFs effected a reliquidation. Therefore, according to NSC, the only recovery available

to the government is the penalty of $10,000 that was properly awarded under section

1592(c)(4).

The government responds that the Court of International Trade did not undertake

a separate legal analysis pursuant to section 1505(c) to grant compensatory interest.

Rather, according to the government, the compensatory interest award resulted from

the court’s analysis of the tenth Complex Machine Works factor⎯whether the party

sought to be protected by the statute is elsewhere adequately compensated for the

harm. The government states that the award of $250,840.21 was to adequately

2007-1007 8
compensate the government for the interest value it lost when the MPFs were not timely

paid. Furthermore, the government urges, even if the Court of International Trade did

erroneously rely on section 1505(c) as part of its reasoning to award compensatory

interest, its error was harmless. The government argues that adequate compensation

to the Treasury is the primary objective of a penalty action under section 1592(c)(4),

and that the substance of what the Court of International Trade did was to follow the

policy that the government should be made whole.

“We review the Court of International Trade’s legal determinations without

deference.” United States v. Ford Motor Co., 463 F.3d 1267, 1273 (Fed. Cir. 2006)

(citing United States v. Hitachi Am., Ltd., 172 F.3d 1319, 1326 (Fed. Cir. 1999)).

“Where, as here, Congress has delegated to the judiciary discretion to determine the

amount of civil penalties under a statute, we review the trial court’s calculation of such

penalties for abuse of discretion.” Id. at 1274.

II.

We hold that the Court of International Trade erred in awarding compensatory

interest to the government under 19 U.S.C. § 1505(c). 5 In interpreting a statute, we

look first to the plain and unambiguous meaning of its language. See Robinson v. Shell

Oil Co., 519 U.S. 337, 340 (1997) (“Our first step in interpreting a statute is to determine

whether the language at issue has a plain and unambiguous meaning with regard to the

5
Contrary to the government’s suggestion, there is no question that the
court looked to section 1505(c) as the authority for its award of compensatory interest.
As noted above, the court stated: “[A]s a matter of fact, . . . compensatory interest would
make the government whole, and . . . the government is entitled to it in accordance with
19 U.S.C. § 1505(c). That provision requires interest to be assessed on underpayments
or overpayments from the date of entry to the date of ‘liquidation or reliquidation.’” NSC
II, 2006 WL 1663279 at *4.

2007-1007 9
particular dispute in the case. Our inquiry must cease if the statutory language is

unambiguous and ‘the statutory scheme is coherent and consistent.’” (quoting United

States v. Ron Pair Enters., Inc., 489 U.S. 235, 240 (1989))); see also Crawfish

Processors Alliance v. United States, 477 F.3d 1375, 1379 (Fed. Cir. 2007). The

government brought this action to recover a penalty, pursuant to 19 U.S.C. § 1592(c)(4),

for erroneous entries of merchandise into the United States in violation of 19 U.S.C.

§ 1592(a). Under section 1592(c), the amount of the penalty that the government may

recover varies based on the level of culpability of the importer and whether the importer

discloses the error before it is independently discovered by Customs. Where an

importer’s violation of section 1592(a) is due to negligence, and the importer voluntarily

discloses the circumstances of the violation to Customs, “any monetary penalty to be

assessed . . . shall not exceed . . . the interest . . . on the amount of lawful duties, taxes,

and fees of which the United States is or may be deprived so long as such person

tenders the unpaid amount . . . within 30 days.” 19 U.S.C. § 1592(c)(4)(B). 6 This

language unambiguously caps the amount the government may recover. There is

nothing in the statutory language providing for recovery by Customs of non-penal

compensatory interest in an action to collect an interest penalty pursuant to section

1592(c).

6
Any unpaid duties, taxes, or fees must be paid whenever there is a
violation of section 1592(a), whether or not a monetary penalty is assessed. See 19
U.S.C. § 1592(d). It is undisputed that NSC timely tendered the unpaid fees in this
case.

2007-1007 10
 At the same time, we are unable to find authority for an independent application

of 19 U.S.C. § 1505(c) under the circumstances of this case. Section 1505(c) states, in

relevant part:

Interest assessed due to an underpayment of duties, fees, or interest shall
accrue, at a rate determined by the Secretary, from the date the importer
of record is required to deposit estimated duties, fees, and interest to the
date of liquidation or reliquidation of the applicable entry or reconciliation.

(emphasis added). Thus, per the language of the statute, there must be a “liquidation or

reliquidation” of an entry at a higher rate of duty, fee, or tax for the government to

recover compensatory interest under section 1505(c). Liquidation is defined as “the

final computation or ascertainment of the duties or drawback accruing on an entry.” 19

C.F.R. § 159.1. Under Customs regulations, “[e]xcept as provided in § 159.12, an entry

not liquidated within 1 year from the date of entry of the merchandise, or the date of final

withdrawal of all merchandise covered by a warehouse entry, shall be deemed

liquidated by operation of law.” 19 C.F.R. § 159.11(a). Under 19 C.F.R. § 159.12,

Customs may extend liquidation for an additional period of time under specified

conditions. It is undisputed that, in this case, more than one year had passed from the

date of NSC’s erroneous entries to the date when NSC notified Customs of the error

and that none of the exceptions under section 159.12 apply. Thus, the entries at issue

in this case had already been liquidated and were final as a matter of law. Per the

statutory scheme, when the time for protesting a liquidation or voluntarily reliquidating

has passed, liquidation is said to be final and conclusive as against all claims by both

the government and the importer. See 19 U.S.C. § 1514(a). 7 What this means is that

7
Section 1514 states, in relevant part:

2007-1007 11
in this case, there could be no accrual of interest on the unpaid MPFs during the period

prior to final “liquidation” for purposes of section 1505(c).

Furthermore, the entries in this case were never reliquidated. Congress has

explicitly provided for reliquidation in certain circumstances. See 19 U.S.C. § 1501

(voluntary reliquidations by Customs within ninety days from the date on which notice of

the original liquidation is given or transmitted to the importer); 19 U.S.C. § 1509 (within

two years of original liquidation Customs may reliquidate without regard to preferential

rate claim where importer fails to provide records supporting such claim); 19 U.S.C.

§ 1520(d) (within one year of date of entry importer who failed to claim preferential

(a) Finality of decisions; return of papers

Except as provided in subsection (b) of this section, section 1501 of this
title (relating to voluntary reliquidations), section 1516 of this title (relating
to petitions by domestic interested parties), and section 1520 of this title
(relating to refunds), any clerical error, mistake of fact, or other
inadvertence, whether or not resulting from or contained in an electronic
transmission, adverse to the importer, in any entry, liquidation, or
reliquidation, and, decisions of the Customs Service, including the legality
of all orders and findings entering into the same, as to⎯

....

(5) the liquidation or reliquidation of an entry, or reconciliation as to the
issues contained therein, or any modification thereof, including the
liquidation of an entry, pursuant to either section 1500 or section 1504 of
this title;

....

shall be final and conclusive upon all persons (including the United States
and any officer thereof) unless a protest is filed in accordance with this
section, or unless a civil action contesting the denial of a protest, in whole
or in part, is commenced in the United States Court of International Trade
in accordance with chapter 169 of Title 28 within the time prescribed by
section 2636 of that title.

2007-1007 12
treatment under Free Trade Agreement may petition to reliquidate the entry). The

codification of the different situations in which Customs may reliquidate indicates the

situations wherein Congress determined it was appropriate to disturb the finality of the

original liquidation. Notably, section 1592 does not refer to reliquidation where there is

a violation of section 1592(a). This indicates that Congress chose not to include

violations of section 1592(a) in the carefully carved out exceptions to the finality of

liquidations. In short, we are unable to find support for the Court of International Trade’s

theory that Customs’ acceptance of the amounts tendered by NSC as repayment of

underpaid MPFs amounted to a “reliquidation” of those entries for purposes of section

1505(c).

In addition, we are unable to agree with the government that the error in this case

was harmless. The decision of the Court of International Trade was erroneous insofar

as it awarded compensatory interest under 19 U.S.C. § 1505(c) in this action, which

was a suit to collect an interest penalty pursuant to 19 U.S.C. § 1592(c)(4). The error

was based upon a misapplication of the law and resulted in an award to the government

in excess of that authorized by the statute. In light of the fact that the court relied

heavily on the erroneous award of compensatory interest in determining the appropriate

penalty amount under section 1592(c)(4), the decision of the court must be vacated and

the case remanded for a re-determination of the penalty.

Finally, the parties dispute whether the Court of International Trade’s award of

prejudgment interest was appropriate. NSC contends that there is no certain award of

damages upon which a claim of prejudgment interest may run and notes that, in the

past, the Court of International Trade has awarded prejudgment interest only in

2007-1007 13
connection with a penalty demand on unpaid duties. The government responds that the

prejudgment interest award was within the Court of International Trade’s discretion,

given the readily ascertainable injury to the government arising from NSC’s violations.

We leave the determination of whether prejudgment interest is available in the case of

an award solely under section 1592(c)(4) for the Court of International Trade to decide

in the first instance on remand.

CONCLUSION

The Court of International Trade erred in awarding compensatory interest under

19 U.S.C. § 1505(c) in this action to collect an interest penalty under 19 U.S.C.

§ 1592(c)(4). The judgment of the Court of International Trade in favor of the United

States is vacated. The case is remanded to the Court of International Trade, which is

instructed to conduct a Complex Machine Works analysis solely under 19 U.S.C.

§ 1592(c)(4). In addition, it will be for the Court of International Trade to determine in

the first instance on remand whether prejudgment interest is appropriate on any award

that it makes under section 1592(c)(4).

VACATED and REMANDED

2007-1007 14