United States Court of Appeals for the Federal Circuit
03-1330,-1345
PRINCESS CRUISES, INC.,
Plaintiff-Cross Appellant,
v.
UNITED STATES,
Defendant-Appellant.
Judith A. Lee, Gibson, Dunn & Crutcher LLP, of Washington, DC, argued for
plaintiff-cross appellant. Of counsel on the brief was Michael K. Stransky.
Todd M. Hughes, Assistant Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of Washington, DC, argued for defendant-
appellant. With him on the brief were Robert D. McCallum, Jr., Associate Attorney
General; and David M. Cohen, Director. Of counsel on the brief was Richard McManus,
Attorney, Office of the Chief Counsel, Bureau of Customs and Border Protection, of
Washington, DC.
Appealed from: United States Court of International Trade
Judge R. Kenton Musgrave
United States Court of Appeals for the Federal Circuit
03-1330, -1345
PRINCESS CRUISES, INC.,
Plaintiff-Cross Appellant,
v.
UNITED STATES,
Defendant-Appellant.
_________________________
DECIDED: February 8, 2005
_________________________
Before MICHEL∗, Chief Judge, NEWMAN, and BRYSON, Circuit Judges.
MICHEL, Chief Judge.
Princess Cruises, Inc. (“Princess”) appeals from the final judgment of the Court of
International Trade (“trial court”). The appeal was submitted for our decision after oral
argument on October 4, 2004. We affirm the trial court’s determination that liability for
Harbor Maintenance Tax (“HMT”) payments on cruises occurring prior to January 27,
1993, which used HMT-covered ports only for layover stops (“layover-only HMT
liability”), is barred by the retroactivity doctrine. We also affirm the trial court’s award of
prejudgment interest to the government because the government was entitled to receive
Arriving Passenger Fee (“APF”) payments from Princess prior to the issuance of a bill
from Customs.
∗
Paul R. Michel assumed the position of Chief Judge on December 25,
2004.
I. Background
Princess owns and operates commercial cruise lines that use the ports of the
United States. The Harbor Maintenance Revenue Act of 1986 (“HMRA”), as codified at
26 U.S.C. §§ 4461 et seq., made cruise lines liable for payments based on port use.
The HMRA payments at issue in this case are HMT and APF payments. In 1991,
Customs initiated an audit of Princess’s HMT and APF payments. As a result of the
audit, Customs determined that Princess was required to make further HMT and APF
payments. During the process, Customs issued Headquarters Ruling 112511, 1993
U.S. CUSTOM HQ LEXIS 12 (Jan. 27, 1993) (the “January 1993 HQ ruling”). At issue
in this case is Customs’ determination under the January 1993 HQ ruling that Princess
is subject to layover-only HMT liability and the related evidentiary presumption that all
passengers on board the cruise are deemed to have disembarked and/or boarded at
the layover port. Princess challenges the January 1993 HQ ruling, as well as
Headquarters Ruling 112750, 1993 U.S. CUSTOM HQ LEXIS 2492 (Oct. 28, 1993) (the
“October 1993 HQ ruling”), which provided further reasoning in support of the
evidentiary presumption.
Princess brought an action in the trial court challenging Customs’ assessment of
Princess’s HMT and APF liability. The court initially entered judgment in favor of
Princess based on the Supreme Court’s decision in United States v. United States Shoe
Corp., 523 U.S. 360 (1998), declaring the provisions of the HMRA related to exported
goods unconstitutional under the Exports Clause. The trial court concluded that the
provisions of the HMRA governing the transportation of passengers were likewise
unconstitutional under the Exports Clause. See Princess Cruises, Inc. v. United States,
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15 F. Supp. 2d 801 (Ct. Int’l Trade 1998). This court reversed, determining that the
provisions related to passengers were not themselves unconstitutional under the
Exports Clause and that such provisions were severable from the provisions declared
unconstitutional by the Supreme Court. Princess Cruises, Inc. v. United States, 201
F.3d 1352, 1358 (Fed. Cir. 2000). On remand, the trial court held that layover-only HMT
liability cannot be assessed against Princess for cruises occurring prior to January 27,
1993 (the date of the January 1993 HQ ruling). Princess Cruises, Inc. v. United States
(“Summary judgment opinion”), 217 F. Supp. 2d 1361, 1364-65 (Ct. Int’l Trade 2002).
The trial court further addressed Princess’s APF liability, holding that the government
was entitled to prejudgment interest from the time that Princess should have made the
APF payments in the ordinary course of business, not merely for the period after billing.
Id. at 1367-68.
The government appeals the trial court’s determination related to pre-1993
layover-only HMT liability and Princess cross-appeals the trial court’s determination
related to prejudgment interest. We have jurisdiction under 28 U.S.C. § 1295(a)(5).
We note that this appeal is closely related to Carnival Cruise Lines, Inc. v. United
States, Nos. 04-1110, 04-1219, also before this panel. These appeals share the
common issue of whether layover-only HMT liability can be assessed against the cruise
lines for pre-1993 cruises. As in this case, the trial court in Carnival Cruise Lines held
that Carnival was not liable for layover-only HMT payments prior to the issuance of the
January 1993 HQ ruling. Carnival Cruise Lines, Inc. v. United States, 246 F. Supp. 2d
1296 (Ct. Int’l Trade 2002). Indeed, the trial court based its decision in this case on its
03-1330, -1345 3
reasoning in Carnival Cruise Lines. Accordingly, in addressing the reasoning of the trial
court, we refer to its decisions in both this case and Carnival Cruise Lines.
II. Violation of Fed. R. App. P. 28(c)
Before turning to the merits of this case, we address a procedural matter. Under
Fed. R. App. P. 28, the appellant is allowed an opening brief, the appellee is allowed a
brief in response, and the appellant is allowed a reply brief. “An appellee who has
cross-appealed may file a brief in reply to the appellant’s response to the issues
presented by the cross-appeal.” Fed. R. App. P. at 28(c). The practice notes to Rule
28 in the Federal Circuit’s Rules of Practice further state that “counsel are cautioned, in
cases involving a proper cross-appeal, to limit the fourth brief to the issues presented by
the cross-appeal.”
In this case, the reply brief Princess filed as cross-appellant was not limited to
issues concerning the cross-appeal. Indeed, the majority of Princess’s reply brief
addressed the government’s appeal. After we raised Princess’s failure to comply with
Rule 28(c) during oral argument, Princess filed an unopposed motion to strike the
offending portions of its reply brief, which we granted. We appreciate Princess’s efforts
to correct the problem it created, albeit belatedly.
We note a troubling trend for the counsel of cross-appellants to disregard the rule
limiting their reply brief to issues concerning the cross-appeal. See, e.g., In re Violation
of Rule 28(c), 388 F.3d 1383 (Fed. Cir. 2004).1 The filing of improper sur-reply
arguments is unfair to appellants who bear the burden of demonstrating prejudicial error
1
We note that counsel in this case did not have the benefit of our order in In
re Violation of Rule 28(c), which issued on November 5, 2004, well after the briefs in
this case were filed.
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in the decision being appealed and, therefore, are entitled to the last word in both the
briefs and at oral argument on their appeal.
We caution all counsel for cross-appellants who file improper sur-reply
arguments that they may be subject to sanctions under Fed. R. App. P. 46(c), which
provides that “[a] court of appeals may discipline an attorney who practices before it . . .
for failure to comply with any court rule.” We further urge counsel for appellants to file
timely motions to strike improper sur-reply arguments because the prejudice from
improper sur-reply arguments is difficult to eliminate once such arguments have been
read by the court.
III. Government’s Appeal
The government appeals the trial court’s conclusion that the January 1993 HQ
ruling cannot be applied to conduct occurring prior to the ruling’s issuance. Summary
judgment opinion, 217 F. Supp. 2d at 1364-65; Carnival Cruise Lines, 246 F. Supp. 2d
at 1301. The trial court’s decision was based on the canon of construction pronounced
in Gould v. Gould, 245 U.S. 151, 153 (1917), that ambiguities in tax statutes “are
construed most strongly against the government and in favor of the citizen.” Princess
advances here an alternative argument from that adopted by the trial court, contending
that application of the January 1993 HQ ruling to conduct preceding the ruling is barred
under the retroactivity doctrine. The government argues that neither the trial court’s
rationale nor the alternative ground advanced by Princess justifies the result adopted by
the trial court. As explained below, we agree with Princess that the retroactivity doctrine
bars application of the January 1993 HQ ruling to pre-1993 conduct.
03-1330, -1345 5
A.
“Retroactivity is not favored in the law” and, therefore, “congressional enactments
and administrative rules will not be construed to have retroactive effect unless their
language requires this result.” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208
(1988). In other words, a rule or regulation will not be applied retroactively unless the
agency clearly intended that the rule have retroactive effect and Congress authorized
retroactive rulemaking. See id.
The most cited definition of retroactivity is that given by Justice Story in Society
for Propagation of the Gospel v. Wheeler, 22 F. Cas. 756, 767 (No. 13,156) (C.C.N.H.
1814), that “every statute, which takes away or impairs vested rights acquired under
existing laws, or creates a new obligation, imposes a new duty, or attaches a new
disability, in respect to transactions or considerations already past, must be deemed
retrospective.” The Supreme Court elaborated on this definition in Landgraf v. USI Film
Products, stating:
A statute does not operate “retrospectively” merely because it is applied in
a case arising from conduct antedating the statute’s enactment or upsets
expectations based in prior law. Rather, the court must ask whether the
new provision attaches new legal consequences to events completed
before its enactment. The conclusion that a particular rule operates
“retroactively” comes at the end of a process of judgment concerning the
nature and extent of the change in the law and the degree of connection
between the operation of the new rule and a relevant past event. Any test
of retroactivity will leave room for disagreement in hard cases, and is
unlikely to classify the enormous variety of legal changes with perfect
philosophical clarity. However, retroactivity is a matter on which judges
tend to have sound instincts and familiar considerations of fair notice,
reasonable reliance, and settled expectations offer sound guidance.
511 U.S. 244, 269-70 (1994) (internal citations, quotations, and footnote omitted).
Thus, the court must consider not only in a bright-line fashion whether a rule, regulation,
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or decision “creates a new obligation, imposes a new duty, or attaches a new disability,
in respect to transactions or considerations already past,” but must also consider more
comprehensively the “nature and extent of the change of the law,” “the degree of
connection between the operation of the new rule and a relevant past event,” and
“familiar considerations of fair notice, reasonable reliance, and settled expectations.” Id.
at 270; see also Marrie v. SEC, 374 F.3d 1196, 1206-09 (D.C. Cir. 2004) (applying the
Landgraf factors); McCoy v. Gilbert, 270 F.3d 503, 509 (7th Cir. 2001) (same).
The government focuses its retroactivity arguments on a test it discerns from the
Seventh Circuit, in which the court discussed “whether a rule is a clarification or a
change in the law.” Pope v. Shalala, 998 F.2d 473, 483 (7th Cir. 1993) (emphasis
added), overruled on other grounds by Johnson v. Apfel, 189 F.3d 561 (7th Cir. 1999).
Under this doctrine, changes, but not clarifications, have retroactive effect. The Pope
court reasoned that “[a] rule simply clarifying an unsettled or confusing area of the
law . . . does not change the law, but restates what the law according to the agency is
and has always been.” 998 F.2d at 483. Further, under Pope, courts in the Seventh
Circuit “will defer to an agency’s expressed intent that a regulation is clarifying unless
the prior interpretation of the regulation or statute in question is patently inconsistent
with the later one.” Id.
We find the binary analysis -- change or clarification -- advanced by the
government largely unhelpful. Merely categorizing rules or applications of rules as
“clarifications” or “changes” provides little insight into whether a retroactive effect would
result in a particular case. As noted by the Court of Appeals for the D.C. Circuit, a
clarification, in fact, “changes the legal landscape,” because “a precise interpretation is
03-1330, -1345 7
not the same as a range of possible interpretations.” Health Ins. Ass’n of Am., Inc. v.
Shalala, 23 F.3d 412, 423-24 (D.C. Cir. 1994); McCoy, 270 F.3d at 509 (noting that the
Landgraf factors must be applied because “almost every new statute results in some
perceptible effect or impact on countless past or pre-existing choices, decisions, and
interests of the actors and subjects in the newly-regulated field”).
Further, the bright-line, binary test espoused by the government conflicts with the
court’s obligation to weigh the various factors described in Landgraf. Indeed, Landgraf
explicitly requires the court to consider “the nature and extent of the change in the law,”
not merely whether a change has occurred. 511 U.S. at 270 (emphasis added).
Finally, the government’s argument based on bright-line categories
mischaracterizes the Seventh Circuit’s doctrine, which appears to rely substantially on
the agency’s intent in enacting a rule or regulation, not merely whether the effect of the
rule is a change or a clarification. Thus, we reject the government’s argument and
instead apply the factors outlined in Landgraf.
B.
Two related decisions in the January and October 1993 HQ rulings raise
retroactivity concerns. The first is Customs’ conclusion that cruise lines are subject to
layover-only HMT liability. January 1993 HQ ruling, 1993 U.S. CUSTOM HQ LEXIS 12,
at *4-*13. The second is an evidentiary presumption that all passengers disembarked
and/or boarded the cruise ship at each layover stop. The January 1993 HQ ruling
reads, “Customs is entitled to the presumption, rebuttable upon submission of adequate
documentation, that every passenger travelling on the vessel ‘disembarks’ and/or
03-1330, -1345 8
‘boards’ at these stopover ports within the meaning of 24.24(e)(4) and that HMFs
[HMTs] should be assessed accordingly.” Id. at *11-*12.
To determine whether these decisions would have retroactive effect if applied to
conduct occurring prior to January 27, 1993, we examine the Landgraf factors, namely,
the “nature and extent of the change of the law,” “the degree of connection between the
operation of the new rule and a relevant past event,” and “familiar considerations of fair
notice, reasonable reliance, and settled expectations.” 511 U.S. at 270.
1.
Princess contends that prior to the January 1993 HQ ruling “the
contemporaneous state of the law held that such layover stops were not subject to HMT
assessment.” In other words, Princess argues that the “nature and extent of the change
of the law” was significant; indeed, total -- from no liability to 100% liability per
passenger.
Princess’s contention conflicts generally with our prior decision in this case,
where we held that the relevant statute, congressional intent, and regulation were
sufficiently ambiguous to require deference to, and adoption of, Customs’ 1993
interpretation of its ambiguous regulation. Princess Cruises, 201 F.3d at 1358-60. In
the prior decision, we found ambiguous the congressional intent, although we noted that
the legislative history related to the HMT and subsequent taxes “implies that . . .
Congress believed that the HMT applied to stopovers.” Id. at 1359. We also found
ambiguous an interpretive regulation providing that liability accrued “‘when a passenger
boards or disembarks a commercial vessel at a port within the definition of this section.’”
Id. at 1358 (quoting 19 C.F.R. § 24.24(e)(4) (1999)). We thus concluded that we were
03-1330, -1345 9
“forced to rely on Customs’s interpretation of its own regulations.” Id. at 1359. Our prior
decision in this case thus demonstrates that the state of the law prior to the January and
October 1993 HQ rulings was not settled in favor of Princess. Accordingly, because
Customs was required merely to decide an unsettled question between two competing
viewpoints, that decision, by itself, would be unlikely to effect a significant change in the
law. Princess also relies on two specific pieces of evidence in support of its position -- a
March 23, 1991, letter from a Customs Regional Director and a cruise vessel summary
sheet (“CVSS”). We find neither persuasive.
Princess mistakenly relies on the March 23, 1991, letter it received from Donald
Frigge, a Customs Regional Director. In this letter, Frigge stated that “we have received
word from the Office of Regulations and Rulings that C.R. 4.80a(4) [sic] applies to your
Alaska voyages and no HMF [HMT] is due for stopovers (layovers).” In this appeal,
Princess contends that this letter “was a valid ruling under the Customs Service’s own
regulations existing at the time,” citing the definition of “ruling letter” in 19 C.F.R.
§ 177.1(d). We rejected this contention, however, in our prior decision in this case,
where we held that the letter “was not a formal ‘letter ruling’ or adjudication by
Customs.” Princess Cruises, 201 F.3d at 1360. Indeed, we find troubling Princess’s
failure to cite our prior decision in its argument on this point.
Second, Princess cites the CVSS, which Princess, along with other cruise lines,
was required to complete and send to Customs on a quarterly basis. Two categories of
requested information are of particular relevance, namely, “Number of Passengers on
Cruise” and “Total Eligible Charges for Passengers on Cruise.” Under the January
1993 HQ ruling, a cruise line’s layover-only HMT liability is limited to those passengers
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who actually disembark and/or board the cruise ship at the layover port (“eligible
passengers”). Princess contends that the existence of a blank for the total number of
passengers on the cruise and the absence of a blank for the number of eligible
passengers necessarily means that the HMT would not be charged for mere layovers.
Princess also points out that the regulations accompanying the CVSS did not provide
any direction on how to calculate the layover-only HMT liability. Although a blank space
labeled “Total Number of Eligible Passengers” may have been clearer, we disagree that
layover-only HMT liability is inconsistent with the CVSS. Instead, a cruise that made
only a layover stop at an HMT-covered port could have listed the total eligible charges
based on the number of eligible passengers in the “Total Eligible Charges for
Passengers on Cruise” category. Thus, we disagree with Princess that the state of the
law prior to the January 1993 HQ ruling was settled that cruise lines were not liable for
layover-only HMT payments.
We agree, however, with Princess that the combination of the January 1993 HQ
ruling that cruise lines were liable for layover-only HMT payments with the evidentiary
presumption that all passengers disembarked and/or boarded at the layover port does
result in a significant change in the law. In the October 1993 HQ ruling, Customs
acknowledged that the evidentiary presumption of the January ruling is “nowhere to be
found in either the HMF [HMT] statute or regulations.” 1993 U.S. CUSTOM HQ LEXIS
2492, at *19. The imposition of such a strong and unprecedented presumption with no
basis in either the statute or regulations changes the law in a significant way.
In its October 1993 HQ ruling, Customs analogizes the evidentiary presumption it
imposed in the January 1993 HQ ruling in the passenger context to evidentiary
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requirements in the transported goods context. Customs cited 19 C.F.R. § 141.1(a),
which provides that “[d]uties and the liability for their payment accrue upon imported
merchandise on arrival of the importing vessel within a Customs port with the intent then
and there to unlade . . . unless otherwise specially provided for by law.” Based on this
language alone, Customs asserts that subsection 141.1(a) establishes an evidentiary
presumption as to the unlading of goods. Yet subsection 141.1(a) says nothing about
an evidentiary presumption and, therefore, provides no support for its argument.
Furthermore, even assuming arguendo that subsection 141.1(a) creates an evidentiary
presumption applicable to the unlading of goods, its extension to passengers is
tenuous, at best, because Congress explicitly differentiated between transported goods
and passengers in the HMRA.
Accordingly, we conclude that the imposition of HMT liability for layovers
combined with the strong evidentiary presumption in the January 1993 HQ ruling
effected a large change in the law.
2.
Under the retroactivity analysis set forth in Landgraf, we must also consider “the
degree of connection between the operation of the new rule and a relevant past event.”
511 U.S. at 270. Thus, not only must a new rule effect a significant change in the law,
but this change must also have a significant connection with past events.
It is undisputed that Princess did not document who actually disembarked and/or
boarded at HMT-covered ports. Before the January 1993 HQ ruling, it was the common
understanding among the cruise lines, we are told, that they had no need to create such
data. Thus, the operation of the new rule, the evidentiary presumption, is connected to
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a relevant past event, the non-collection of data concerning which passengers
disembarked and/or boarded at HMT-covered layover ports.
Further, because Princess did not document which passengers disembarked
and/or boarded at HMT-covered layover ports, it will forever and completely be unable
to rebut the evidentiary presumption. Princess will thus be overcharged to the extent
that some of its passengers did not disembark and/or board at HMT-covered layover
ports on cruises at issue in this case. Accordingly, the degree of connection is strong
because applying the January 1993 HQ ruling to pre-1993 conduct would result in
Princess being overcharged.
3.
Finally, we take into account “familiar considerations of fair notice, reasonable
reliance, and settled expectations.” Landgraf, 511 U.S. at 270. The weight to be given
this factor has been the subject of several decisions in other circuits. The Court of
Appeals for the Fourth Circuit recently held that this factor does not require a party
advancing a retroactivity theory to prove “subjective reliance” on preexisting law.
Olatunji v. Ashcroft, 387 F.3d 383 (4th Cir. 2004). The Olatunji court held that “[t]o the
extent that it [reliance] could or should be understood as required in order to establish
impermissible retroactive effect however, we would insist at most upon objectively
reasonable reliance (as opposed to the subjective reliance proposed by the government
and the dissent).” Id. at 396. The Court of Appeals for the D.C. Circuit stated:
The Court observed that “familiar considerations of fair notice, reasonable
reliance, and settled expectations” should offer guidance in those hard
cases where a finding of retroactivity requires balancing “the nature and
extent of the change in the law and the degree of connection between the
operation of the new rule and a relevant past event.”
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Marrie, 374 F.3d at 1207. Thus, the Marrie court appears to view the “familiar
considerations” as akin to a tiebreaker in close cases.
In this case, however, we need not resolve the relative weight to be given to the
third Landgraf factor because it points in the same direction as the first and second
factors. First, the imposition of an evidentiary presumption that cannot possibly be met
strongly implicates fairness considerations. Second, the receipt of the Frigge letter
magnifies fairness and reliance considerations. The letter stated that cruise lines would
not be subject to layover-only HMT liability. Moreover, even though the letter was not
an official ruling, it came from a senior Customs official and explicitly stated that the
interpretation being conveyed had been obtained from headquarters, not merely the
regional office from which the letter was sent.
Accordingly, the third Landgraf factor also suggests that the application of the
January 1993 HQ ruling to pre-1993 conduct would result in a prohibited retroactive
effect.
4.
We thus conclude that the application of the January 1993 HQ ruling to conduct
occurring before the ruling was issued would have impermissible retroactive effect
because each of the Landgraf factors points in favor of such a conclusion. Specifically,
the combined effect of imposing layover-only HMT liability with a strong evidentiary
presumption that all passengers disembarked and/or boarded at the layover port
worked a significant change in the law. Moreover, applying the evidentiary presumption
to pre-1993 conduct would strongly connect the January 1993 HQ ruling with past
events, namely, the already completed cruises, and would prejudice Princess and all
03-1330, -1345 14
other cruise lines who would be overcharged for layover-only HMT liability. Finally, the
evidentiary presumption along with the informal letter further demonstrate the unfairness
of applying the January 1993 HQ ruling to conduct occurring prior to its being issued.
Because the application would have retroactive effect and Customs has not
claimed that such retroactive effect is otherwise permissible, i.e., through delegated
authority and clearly expressed intent to apply the January 1993 HQ ruling retroactively,
we hold that the January 1993 HQ ruling cannot be applied to conduct occurring prior to
the ruling’s issuance. We do not address, in the alternative, whether the grounds
advanced by the trial court also demonstrate that the January 1993 HQ ruling cannot be
applied to conduct that precedes it.
IV. Princess’s Cross-Appeal
Princess’s cross-appeal is limited to whether the trial court abused its discretion
in awarding prejudgment interest in favor of the government. It is undisputed that no
statute or regulation explicitly authorizes prejudgment interest. In the absence of a
statute governing the award of prejudgment interest, “the question is governed by
traditional judge-made principles.” City of Milwaukee v. Cement Div., Nat’l Gypsum Co.,
515 U.S. 189, 194 (1995). “Prejudgment interest serves to compensate for the loss of
use of money due as damages from the time the claim accrues until judgment is
entered, thereby achieving full compensation for the injury those damages are intended
to redress.” West Virginia v. United States, 479 U.S. 305, 310 n.2 (1987).
The trial court’s decision whether to award prejudgment interest is reviewed for
abuse of discretion. United States v. Reul, 959 F.2d 1572, 1578 (Fed. Cir. 1992). An
abuse of discretion results if the trial court “made an error of law, or a clear error of
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judgment, or made findings which were clearly erroneous.” Id. (internal quotation
omitted).
A.
The trial court agreed with Princess that “Customs’ inability to provide Princess
with an explanation for the actual basis for some of its bills until late in this litigation
[was] appalling.” Summary judgment opinion, 217 F. Supp. 2d at 1368. The trial court
disagreed, however, with Princess’s argument that the government was not entitled to
prejudgment interest, reasoning that “the relevant equitable inquiry focuses on when
Customs was entitled to the principal APF amounts at issue” and that the government
was entitled to prejudgment interest from the time Princess should have made its APF
payments. Id.
Princess argues that “[a]nyone familiar with the long and tortured history of this
case cannot possibly conclude that the equities lie with the Government here.” Princess
thus effectively contends that the trial court abused its discretion by making a “clear
error of judgment” in balancing the equities.
The degree to which the trial court is to balance equitable factors to determine
whether to award prejudgment interest is not easy to discern from the case law. In
Rodgers v. United States, the Supreme Court stated,
As our prior cases show, a persuasive consideration in determining
whether such obligations shall bear interest is the relative equities
between the beneficiaries of the obligation and those upon whom it has
been imposed. And this Court has generally weighed these relative
equities in accordance with the historic judicial principle that one for whose
financial advantage an obligation was assumed or imposed, and who has
suffered actual money damages by another’s breach of that obligation,
should be fairly compensated for the loss thereby sustained.
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332 U.S. 371, 373-74 (1947) (emphasis added); see also Reul, 959 F.2d at 1577-79
(stating that “the Court of International Trade in exercising its equitable powers may in
its sound discretion award prejudgment interest” and declining the appellant’s “invitation
to rebalance the equities”). In West Virginia, however, the Supreme Court stated: “The
District Court held that whether interest had to be paid depended on a balancing of
equities between the parties; the Court of Appeals rejected such an approach, as do
we.” 479 U.S. at 311 n.3. Instead, the Supreme Court reasoned that “[p]rejudgment
interest is an element of complete compensation” and, therefore, would further the
congressional intent underlying the statute in question in that case. Id. at 310-11. We
need not resolve any tension among these cases, however, because the result would
be the same on the facts of this case.
Here, the trial court found the government’s conduct to be “appalling” but
determined that the government’s acts, though appalling, did not outweigh its right to
the “interest it could have earned had it received these APF payments in the ordinary
course of business.” Summary judgment order, 217 F. Supp. 2d at 1368. Thus, the trial
court appropriately focused on the principle of full compensation.
Princess argues that the full compensation rationale for awarding prejudgment
interest “is not relevant to this case, of course, since the Government already has
possession of the contested amount.” Princess’s argument is unpersuasive, for even if
a party receives payment some time before judgment, the party has still lost the interest
it could have earned during the time from when the payment was originally due to when
it was received. As stated by the trial court, “Customs is correct in stating that it ‘lost’
03-1330, -1345 17
the interest it could have earned had it received these APF payments in the ordinary
course of business.” Id.
Accordingly, we hold that the trial court’s award of prejudgment interest properly
accounted for the principle of complete compensation and, therefore, that no clear error
of judgment occurred.
B.
Princess further contends that the trial court’s award of prejudgment interest was
inappropriate because the government has unclean hands. The doctrine of unclean
hands “is a self-imposed ordinance that closes the doors of a court of equity to one
tainted with inequitableness or bad faith relative to the matter in which he seeks relief,
however improper may have been the behavior of the defendant.” Precision Instrument
Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945). The trial court has broad
discretion under the doctrine of unclean hands. Id. at 815 (“This maxim necessarily
gives wide range to the equity court’s use of discretion in refusing to aid the unclean
litigant. It is not bound by formula or restrained by any limitation that tends to trammel
the free and just exercise of discretion.” (internal quotation omitted)).
Princess has not shown that the trial court abused its broad discretion in
declining to invoke the doctrine of unclean hands. Indeed, Princess has failed to
adduce evidence even sufficient to invoke, let alone compel the application of, the
doctrine of unclean hands. Princess questions Customs’ “competence” and “willingness
to address basic calculation errors and discrepancies” in its briefing, but Princess has
not provided evidence of “inequitableness or bad faith” as required to invoke the
doctrine of unclean hands. See id. at 814.
03-1330, -1345 18
C.
Princess finally argues that the trial court abused its discretion in awarding
prejudgment interest by making an error of law. Princess identifies two interest periods
in this case, labeling them as a “pre-billing interest” period and prejudgment interest
period. Pre-billing interest refers to interest accruing from the time a cruise line was
required to make a payment until the time the cruise line was billed. Prejudgment
interest, under Princess’s view, covers only the time after the cruise line is billed until
judgment. Princess thus contends that the trial court erred as a matter of law by
awarding pre-billing interest.
As noted above, “[p]rejudgment interest serves to compensate for the loss of use
of money due as damages from the time the claim accrues until judgment is entered.”
West Virginia, 479 U.S. at 310 n.2 (emphasis added). If a claim accrues at the time of
billing, then prejudgment interest accrues from the time of billing. If, on the other hand,
a claim accrues at a time before billing, then prejudgment interest accrues from that pre-
billing time. Accordingly, the labels Princess advances are unnecessary because the
dispositive issue is determining when a claim accrues, not when a bill was sent.2
Princess quotes from Reul, which states that “the entire weight of authority holds
that a surety cannot be taxed with interest on the principal’s debt until demand is made
upon the surety for payment of the principal’s obligation.” 959 F.2d at 1579. The
2
Princess argues that the standard of review over the trial court’s decision
to award interest is not abuse of discretion, because “[i]t is, however, the pre-billing
interest award that Princess Cruises is challenging, and thus the de novo standard of
review for grants and denials of summary judgment is the proper standard of review for
this issue.” Because we reject Princess’s distinction between pre-billing interest and
prejudgment interest, we also reject its argument as to the appropriate standard of
review.
03-1330, -1345 19
holding in Reul that prejudgment interest did not apply before a demand was made is
not generally applicable, however, because it followed from the rule that “interest can be
charged against the surety only from the date of demand on it, because until then the
surety is not in default.” Id. at 1581 (internal quotation omitted, emphasis added).
Princess has made no argument that it was only secondarily liable as a surety for
making APF payments. Instead, Princess was obligated to make APF payments during
the ordinary course of business and, therefore, was in “default” when it failed to make
timely payments.
Princess finally cites Customs’ October 1993 HQ ruling, which addressed a
number of issues, including layover-only HMT liability and the following:
Under the provisions of 19 U.S.C. 1505(c), duty amounts fixed by
liquidation or reliquidation are considered delinquent if not paid within 30
days. Interest on delinquent accounts accrues from the 15th day after
liquidation or reliquidation. Inasmuch as the APF and HMF [HMT] are
considered to be duties for administrative and enforcement purposes, the
failure to pay these fees can result in the accrual of interest once the debt
is fixed. In our view, the debt becomes fixed once it is billed to the
principal and surety.
1993 U.S. CUSTOM HQ LEXIS 2492, at *42-*43.
The quoted analysis of the October 1993 HQ ruling, however, is rooted in a
statute not at issue here and, therefore, has no application in this case. In this case, the
trial court did not rely on that section in assessing prejudgment interest. And, in fact,
even Princess agrees on appeal that section 1505(c) does not provide a statutory basis
for prejudgment interest. Accordingly, we hold that the trial court did not abuse its
discretion in its award of prejudgment interest.
03-1330, -1345 20
V. Conclusion
In sum, we affirm the trial court’s determination that Princess is not liable for pre-
1993 layover-only HMT payments. We also affirm the trial court’s award of prejudgment
interest to the government from the time that Princess was obligated to make the
payments in the ordinary course of business.
AFFIRMED
03-1330, -1345 21