Slip Op. 06-7
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
UNITED STATES OF AMERICA, :
:
Plaintiff, :
:
v. : Court No. 05-00284
:
FORD MOTOR COMPANY, :
:
Defendant. :
________________________________________:
[Defendant’s Motion to Dismiss is granted. Case dismissed.]
Peter D. Keisler, Assistant Attorney General; David M. Cohen,
Director, Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice, (David A. Levitt); of counsel: Kathleen Bucholtz, United
States Customs and Border Protection, for the United States,
plaintiff.
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
(Robert B. Silverman, David M. Murphy, Steven P. Florsheim, Robert
F. Seely, and Frances P. Hadfield); of counsel: Paulsen K.
Vandevert, for Ford Motor Company, defendant.
January 13, 2006
OPINION
TSOUCALAS, Senior Judge: Ford Motor Company, (“Ford”),
defendant, moves for dismissal pursuant to USCIT R. 12(b) on the
grounds that (1) issue preclusion prevents the Bureau of Customs
and Border Protection of the Department of Homeland Security
Court No. 05-00284 Page 2
(“Customs”)1, plaintiff, from litigating the current action and (2)
the statute of limitations has run on Customs’ claims before the
present action was initiated. Specifically, Ford contends that
Customs is barred from litigating the present action under the
doctrine of issue preclusion as they are disregarding previous
court findings on the same issues, factual findings and
conclusions. Ford further asserts that the statute of limitations
bars Customs from seeking penalties and duties as no valid waiver
was in place when Customs commenced the present action. Customs
responds that the litigation is not barred under the doctrine of
issue preclusion as previous court findings do not settle the
present question of penalties. Customs further responds that a
valid waiver of the statute of limitations did exist when it filed
the case at bar.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1582 (2000).
1
The United States Customs Service was renamed the Bureau
of Customs and Border Protection of the Department of Homeland
Security, effective March 1, 2003. See Homeland Security Act of
2002, Pub. L. No. 107-296, § 1502, 116 Stat. 2135 (2002);
Reorganization Plan for the Department of Homeland Security, H.R.
Doc. No. 108-32 (2003).
Court No. 05-00284 Page 3
STANDARD OF REVIEW
A court should not dismiss a complaint for failure to state a
claim upon which relief may be granted “unless it appears beyond
doubt that the plaintiff 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); see also Halperin Shipping Co., Inc. v.
United States, 13 CIT 465, 466 (1989). Moreover, the Court must
accept all well-pleaded facts as true and view them in the light
most favorable to the non-moving party. See United States v.
Islip, 22 CIT 852, 854, 18 F. Supp. 2d 1047, 1051 (1998) (citing
Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir.
1991)). A pleading that sets forth a claim for relief must contain
“a short and plain statement” of the grounds upon which
jurisdiction depends and “of the claim showing that the pleader is
entitled to relief . . . .” USCIT R. 8(a). “To determine the
sufficiency of a claim, consideration is limited to the facts
stated on the face of the complaint, documents appended to the
complaint, and documents incorporated in the complaint by
reference.” Fabrene, Inc. v. United States, 17 CIT 911, 913
(1993). Accordingly, the Court must decide whether plaintiff is
entitled to offer evidence in support of its claim, and not whether
plaintiff will prevail in its claim. See Halperin, 13 CIT at 466.
Court No. 05-00284 Page 4
DISCUSSION
I. Background
This action involves eleven entries of engines and
transmissions (“Complaint Entries”). See Mem. Law Supp. Def.’s
Mot. Dismiss (“Ford’s Mem.”) at 1; Mem. Opp’n Def.’s Mot. Dismiss
Compl. (“Customs’ Mem.”) at 5. In 1983, Ford applied to the
Foreign Trade Zone Board (“FTZ Board”) for approval in establishing
a Foreign Trade Subzone (“FTSZ”) in Louisville, Kentucky. See
Ford’s Mem. at 3; Customs’ Mem. at 2. The FTZ Board granted Ford’s
request in 1984. See Ford’s Mem. at 4; Customs’ Mem. at 2. A FTSZ
is a geographic area located within the United States that can be
treated as being outside the customs territory of the United
States. See Ford’s Mem. at 3; Customs’ Mem. at 2. Importers can
choose to pay duties on goods either at the rate applicable to the
foreign merchandise upon admission to the area, or on the emerging
product if used in manufacturing within the FTSZ. See id.;
Customs’ Mem. at 2.
In 1985 and 1986, the duty rate on finished imported cars was
2.6 percent ad valorem while the duty rate for foreign-made engines
and transmissions was 3.3 percent ad valorem. See Ford’s Mem. at
3; Customs’ Mem. at 2. The duty rate on finished imported trucks
was 25 percent ad valorem. See Ford’s Mem. at 3; Customs’ Mem. at
5. Ford intended to take advantage of the duty differential
Court No. 05-00284 Page 5
between the parts and the completed car through an “inverted tariff
program” by admitting car engines and transmissions into the FTSZ
as foreign merchandise. See Ford Mem. at 3-4; see also Customs’
Mem. at 2. The merchandise would then be incorporated into
finished cars within the FTSZ and subsequently be withdrawn for
entry into the United States. See id.; see also Customs’ Mem. at
2. Ford was required to file Customs Form (“CF”) 214 in order to
obtain the inverted tariff benefit by designating all car parts as
“non privileged foreign” (“NPF”) and all truck parts as “privileged
domestic” (“PD”). See Ford Mem. at 4; Customs’ Mem. at 3.
Ford incorrectly marked the CF 214 checkbox for the Complaint
Entries as NPF instead of PD. See Ford’s Mem. at 5; Customs’ Mem.
at 5. Customs investigated the Complaint Entries and determined
that the parts used in the manufacture of trucks were dutiable at
the finished truck rate of 25 percent ad valorem. See Ford’s Mem.
at 6; Customs’ Mem. at 5. Thus, Ford owed additional duties of
approximately 5.3 million dollars. See id. at 6; Customs’ Mem. at
5. Customs then liquidated the entries at the 25 percent rate,
which Ford timely paid and protested. See Ford’s Mem. at 6-7;
Customs’ Mem. at 5.
On January 22, 1992, Ford filed a protest action in this Court
Court No. 05-00284 Page 6
challenging Customs’ assessments on the Complaint Entries.2 See
Ford’s Mem. at 7. After much litigation, on April 12, 2002, the
Court of Appeals for the Federal Circuit (“CAFC”) held that
Customs’ investigation was unreasonable and that the “entries must
be deemed liquidated under 19 U.S.C. § 1504(a).” Ford IV, 286 F.3d
at 1343. As a result this court further ordered that Customs
“refund to Ford Motor Company the increase in duties assessed
together with interest from the date of payment of the increased
duties to the date of reliquidation.” Ford VI, 26 CIT at 1292.
During the above mentioned proceedings, Ford drafted letters
waiving the statute of limitations period in 19 U.S.C. § 1621 on
ten separate occasions in response to a request from Customs. See
Ford’s Mem. at 8; Customs’ Mem. at 24. The first nine waivers,
dated between November 5, 1990, and February 15, 2002, were signed
by Customs “acknowledging receipt and acceptance.” See Ford’s Mem.
at Ex. I. In the tenth letter, dated January 13, 2003, Customs
crossed out the words “and acceptance.” See Ford’s Mem. at Ex. I.
Customs followed up with a letter dated January 22, 2003, informing
2
The relevant facts in this case have been heavily
litigated in Ford Motor Co. v. United States (“Ford I”), 21 CIT
983, 979 F. Supp. 874 (1997), Ford Motor Co. v. United States
(“Ford II”), 157 F.3d 849 (Fed. Cir. 1998), Ford Motor Co. v.
United States (“Ford III”), 24 CIT 775, 116 F. Supp. 2d 1214
(2000), and Ford Motor Co. v. United States (“Ford IV”), 286 F.3d
1335 (Fed. Cir. 2002), Ford Motor Co. v. United States (“Ford V”),
26 CIT 1246 (Oct 18, 2002), vacated by Ford Motor Co. v. United
States (“Ford VI”), 26 CIT 1292 (Oct 28, 2002).
Court No. 05-00284 Page 7
Ford that under its current procedures, Customs now “only
acknowledge[s] receipt of waivers.” See Ford’s Mem. at Ex. I. On
April 12, 2004, Customs amended its original penalty notice to
include a claim for civil penalties and duties under 19 U.S.C. §
1592(d) demanding that Ford repay duties in the amount of
$5,275,329. See Ford’s Mem. at Ex. D. Subsequently, Ford moved
requesting dismissal of the case at bar.
II. Contentions of the Parties
A. Ford’s Contentions
Ford argues that Customs, in commencing the present action, is
disregarding the CAFC’s decision in Ford IV, and as such, issue
preclusion prevents further litigation. See Ford’s Mem. at 2.
Ford stresses that “[t]he assessment of duties on the Complaint
Entries, and the reasonableness of Customs’ actions and
investigation of Ford with respect to those entries, was
exhaustively litigated” during the past decade.3 Ford’s Mem. at 1.
Ford states that both this court and the CAFC made a number of
findings of fact and conclusions of law in the prior action which
involved the Complaint Entries. See id. at 2. Ford notes that the
CAFC held in Ford IV that the length of Customs’ investigation of
the Complaint Entries was unreasonable, and as a result, Ford
3
See supra footnote 2 for a list of the cases.
Court No. 05-00284 Page 8
received duty refunds of $5,275,379 with interest. See id. at 7.
Ford further contends that the CAFC decision indicates that the
Complaint Entries have been liquidated by operation of law in
accordance with 19 U.S.C. § 1504. See id. While admitting that
“the instant action is a claim for penalties and duties under [19
U.S.C. §1]592, and not an importer’s claim for duty refunds under
19 U.S.C. § 1514, as was the prior action,” Ford argues that the
operative facts between both the prior and the current actions are
essentially the same. Id. at 12. Ford further asserts that the
present case should be dismissed as its continuation would go
against public policy because it calls for the relitigation of
prior findings and holdings by the courts. See id. at 13. Ford
stresses that if the CAFC felt that Customs’ 592 penalty case had
merit, the CAFC would not have ordered a duty refund in Ford IV.
See id. at 29. Ford rationalizes that the only reasonable
conclusion to be drawn from Ford IV is that the CAFC intended not
only to award Ford a duty refund, but to preclude the present
penalty action. See id.
Ford further argues that there was no actual loss of revenue,
rather Customs can only seek a potential loss of revenue. See
Ford’s Mem. at 15-18. Ford contends that 19 U.S.C. §§ 1514 &
1592(a) state that if the loss of revenue claim did not result from
a violation of § 1592(a) and if there are no lawful duties to be
Court No. 05-00284 Page 9
restored, then recovery actions are barred. See id. at 18-19.
Ford stresses that when Customs liquidated the Complaint Entries at
25 percent ad valorem in 1989, it paid these duty increases. See
id. at 19. Ford argues that its protest action under 19 U.S.C. §
1514, and the CAFC holding which returned the duty increases to
Ford, do not change the fact that Customs received lawful duties
owed when it rate advanced the Complaint Entries. See id. Thus,
Ford concludes that the duties Customs now seeks are not lawful
duties to which Customs is entitled. See id.
Furthermore, Ford contends the errors that it made on the CF
214s were not fraudulent. See Ford’s Mem. at 23. Ford points out
that Customs’ past characterizations are inconsistent with its
present fraud action because it previously described Ford’s conduct
as a “mistake of law.” Id. at 23. Additionally, Ford contends
that even if fraud is found under 19 U.S.C. § 1592(4)(a), penalties
can not exceed 100 percent of the lawful duties owed because it
made a prior disclosure to Customs. See id. at 16. In a letter
dated February 14, 1986, Ford disclosed the CF 214 error to
Customs. See Ford’s Mem. at Ex. A. Customs then began its civil
fraud investigation under 19 U.S.C. § 1592 in August of 1986. See
Ford’s Mem. at 15. Since Ford’s letter disclosed the CF 214 error
before Customs began its investigation, Ford argues that it made a
valid prior disclosure which limits them to a maximum liability of
Court No. 05-00284 Page 10
$5.3 million dollars. See id. at 16.
Finally, Ford argues that the case should be dismissed as the
statute of limitations has run on both claims for penalties and
duties. See Ford’s Mem. at 30. Ford claims that Customs refused
to accept its tenth waiver offer by striking the words “and
accepted” from the waiver. See id. at 24. Previous to the tenth
waiver, Customs had always signed the waivers with the language
“acknowledged and accepted” intact. See id. The ninth waiver
expired on April 7, 2003. See id. In addition, Ford argues that
the scope of the waivers were limited only to penalties. See id.
at 26. Ford contends that because Customs’ request for a waiver did
not include the collection of unpaid duties, it never issued a
waiver applying to such duties. See id. Accordingly, Ford
concludes that as the ninth waiver regarding penalties
“acknowledged and accepted” by Customs expired in 2003, and as
there was never a waiver issued by Ford dealing with unpaid duties,
the statute of limitations has expired on both issues. See id. at
26-28. Therefore, this case should be dismissed. See id. at 26-
28.
B. Customs’ Contentions
Customs replies that Ford has failed to establish that duties
are not owed on the Complaint Entries. See Customs’ Mem. at 2.
Specifically, Customs asserts that it is not barred from seeking
Court No. 05-00284 Page 11
duties as a result of the issue preclusion or the statute of
limitations arguments raised by Ford. See id. at 1. Customs
argues that in Ford IV the CAFC ruled on “whether the Government
properly extended the liquidations of the entries under [19 U.S.C.
§] 1504, and whether Ford’s failure to pay duties before entering
the truck engines into the FTSZ constituted a correctable clerical
error under [19 U.S.C. §] 1520(c).” Id. at 21. Customs claims
that the prior action concerned its conduct when extending the
liquidations and Ford’s actions when it placed its merchandise in
its FTSZ. See id. “Ford’s culpability when it withdrew its
merchandise from the FTSZ,” which is at issue here “was simply not
addressed.” Id. (emphasis retained). Customs asserts that the
CAFC has yet to rule on Ford’s culpability as it relates to the §
1592 penalty action. See id. at 21. Customs asserts that issue
preclusion or collateral estoppel, applies only when the identical
issue was actually litigated in a prior proceeding and the losing
party was afforded a full and fair opportunity to litigate its
position. See id. at 16. Customs argues that Ford IV and the
present action differ substantially enough to bar Ford’s argument
of issue preclusion. See id. at 16.
Customs further contends that its § 1592 complaint is not
precluded by the statute of limitations. See Customs’ Mem. at 22-
29. Customs argues that waivers of statutes of limitations are
Court No. 05-00284 Page 12
unilateral acts that do not require acceptance from the non-waiving
party. See id. at 22. Thus, Customs asserts that when it struck
the word “accepted” from Ford’s tenth waiver, it did not diminish
or cancel the waiver’s effect. See id. at 24-25. Furthermore,
Customs asserts, the waivers are unlimited in scope because they
“contain no exclusions with respect to unpaid duties” and as such,
the waivers do not exclusively apply to penalty issues. Id. at 27.
Customs then concludes that since Ford waived the statute of
limitations in its tenth waiver, set to expire on April 7, 2005,
and Customs filed the present action on April 6, 2005, its § 1592
complaint is not precluded by the statute of limitations. See id.
at 28-29. Furthermore, as the CAFC has not previously addressed
the present § 1592 penalty action, Ford’s motion to dismiss should
be denied. See id.
III. Analysis
A. The Statue of Limitations for Filing a 19 U.S.C. § 1592
Complaint has Expired.
A legal waiver, such as a waiver of a statute of limitations
“is an intentional release of a known right” in which the following
elements must be met: “1) a right must exist at the time of the
waiver; 2) the party who is accused of waiver must have
constructive or actual knowledge of the right in question; and 3)
the party intended to relinquish its right.” Broad. Satellite
Court No. 05-00284 Page 13
Int’l, Inc. v. Nat’l Digital Television Ctr., Inc., 323 F.3d 339,
345 (5th Cir. 2003). Customs is required to publish notice of any
modification to long standing policy or practice in the Customs
Bulletin. See 19 U.S.C. § 1625(c) (2001). Treasury Decision 76-33
states that Customs “has the authority to accept an offer to
‘waive’ the running of the period of limitation . . . if it appears
that further administrative consideration would promote final
disposition of the matter.” T.D. 76-33, 41 Fed. Reg. 4,302 (Jan.
29, 1976). Treasury Decision 90-11 altered T.D. 76-33 by stating
that “[a]bsent compelling circumstances, Customs will not, as a
matter of policy, favorably entertain offers to waive the statute
for a shorter period of time than the two-year period.” T.D. 90-
11, 55 Fed. Reg. 3,682 (Feb. 2, 1990). Customs had, however,
exercised its right to accept waiver offers of under 24 months when
it accepted Ford’s ninth waiver dated February 15, 2002, although
it only covered a period of 12 months. See Ford’s Mem. at Ex. I.
In an internal Customs memorandum (“June Memo"), dated June
16, 1999, the Chief of the Penalties Branch of the Office of
Regulations & Rulings advised Fines, Penalties and Forfeitures
Officers that “submission of a waiver request represents a
unilateral act of the submitting party, not requiring acceptance by
Customs.” See Customs’ Mem. at Ex. 11. Customs later issued
Treasury Decision 01-65 in September of 2001, which it claims
Court No. 05-00284 Page 14
reiterates the language from June Memo. See Customs’ Mem. at 25;
see also T.D. 01-65, 66 Fed. Reg. 48,170 (Sept. 18, 2001).
Treasury Decision 01-65 states that Customs Headquarters would
delegate to Fines, Penalties and Forfeiture Officers the authority
to “acknowledge waivers of the statute of limitations from parties
who might otherwise be entitled to assert the statute of
limitations as a defense against civil suit.” T.D. 01-65, 66 Fed.
Reg. 48,170. The June Memo explicitly contains language revoking
the “acceptance” requirement, and states that Customs will treat
waivers as unilateral acts. See Customs’ Mem. at Ex. 11. The June
Memo also contains a new sample waiver form reflecting this
alteration. See id. Treasury Decision 01-65, however, contains no
such language. See T.D. 01-65, 66 Fed. Reg. at 48,170-71.
An executive agency, such as Customs, must be held to the
standard by which it claims “to be judged.” Vitarelli v. Seaton,
359 U.S. 535, 546 (1959)(Frankfurter, J., concurring in part and
dissenting in part). “Accordingly, if [agency action] is based on
a defined procedure, even though generous beyond the requirements
that bind such agency, that procedure must be scrupulously
observed.” Id. at 546-47. Customs asked for a waiver of the
statute of limitations from Ford soon after it issued Ford a pre-
penalty notice. See Customs’ Mem. at Ex. 2. All subsequent ten
Ford letters of waiver continued to contain the language “I hereby
Court No. 05-00284 Page 15
acknowledge receipt and acceptance of the above waiver” printed
above the Customs’ signature line. See Ford’s Mem. at Ex. I.
Customs accepted Ford’s first waiver on November 5, 1990. See id.
The ninth waiver, dated February 15, 2002, was the last letter
which Customs signed and dated without making any modification to
the waiver language. See Ford’s Mem. at Ex. I. Customs altered
the tenth waiver, signed January 17, 2003, by striking out the word
“acceptance.” See id. Customs additionally sent a letter dated
January 22, 2003, advising Ford that it now only “acknowledge[s]
receipt of waivers.” See id. Customs had, however, continued to
both “acknowledge and accept” Ford’s waivers over two years after
it issued the June Memo changing its acceptance policy. See
Customs’ Mem. at Ex. 11. By selectively enforcing the June Memo,
Customs was not holding itself to the policy change that it claims
it was enforcing. Furthermore, Customs never published a
revocation of its previous policy relating to acceptance of waivers
as required by 19 U.S.C. § 1625. See T.D. 01-65, 66 Fed. Reg.
48,170 (T.D. 01-65 as published in the Federal Register does not
specifically reference Customs’ shift to unilateral acceptance of
waivers.). As such, Ford’s tenth waiver letter was never accepted
by Customs. Accordingly, the ninth and last valid waiver ended on
April 7, 2003. Therefore, the statute of limitations had expired
when Customs filed the present action. The case at bar is
dismissed in its entirety. See 19 U.S.C. § 1621.
Court No. 05-00284 Page 16
B. Customs is Not Entitled to Relief under 19 U.S.C. §
1592(d).
As the statute of limitations has expired, the dismissal of
this case renders moot the question of whether Ford committed
fraud, negligence or gross negligence under 19 U.S.C. § 1592(a)
(1982). Even if the statute of limitations had not expired,
Customs would still not be entitled to a repayment of duties in the
amount of $5,275,329 under 19 U.S.C. § 1592(d) (1982). Customs’
duty repayment request matches the dollar amount that the CAFC and
this court ordered to be refunded to Ford. See Customs’ Mem. at
Ex. 4; Ford IV, 286 F.3d at 1343; Ford VI, 26 CIT at 1292. 19
U.S.C. § 1592(d) states that “if the United States has been
deprived of lawful duties as a result of a violation of subsection
(a) of this section, [the Customs Service] shall require that such
lawful duties be restored, whether or not a monetary penalty is
assessed.” 19 U.S.C. § 1592(d). The eleven Complaint Entries were
liquidated on December 1, 1989, with duties assessed at the rate of
25 percent ad valorem. Ford I, 979 F. Supp. at 878. The court
held that “Ford timely protested the liquidations and ultimately
paid the additional duties assessed.” Id. Customs’ repayment of
duty claims under 19 U.S.C. § 1592(d) ceased upon Ford’s timely
payment of duties following the December, 1989 liquidations because
the United States was no longer deprived of lawful duties. The
court held that the 25 percent ad valorem duties paid on the
Court No. 05-00284 Page 17
Complaint Entries were not lawful duties to which Customs was
entitled to because Customs’ fraud “investigation and the manner in
which Customs conducted the investigation [was] unreasonable.”
Ford IV, 286 F.3d at 1343. Since Customs is not entitled to any
further lawful duties on the Complaint Entries, Customs cannot seek
relief under 19 U.S.C. § 1592(d).
CONCLUSION
The Court holds that Customs has proven no set of facts in
support of its claim which would entitle it to relief. Customs’
claims under 19 U.S.C. § 1592 extinguished when the statute of
limitations expired. For the foregoing reasons, Ford’s motion to
dismiss is granted. Judgment will be entered accordingly.
/s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE
Dated: January 13, 2006
New York, New York