Slip Op. 05-154
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
FOREST LABORATORIES, INC., :
:
Plaintiff, :
: Court No. 03-00416
v. :
:
UNITED STATES, :
:
Defendant. :
________________________________________:
[Plaintiff’s motion for judgment on the pleadings is denied.
Defendant’s cross-motion for judgment on the pleadings is granted.
Defendant’s motion in the alternative for summary judgment is moot.
Case dismissed.]
Barnes, Richardson & Colburn (Kevin J. Sullivan and James S.
O’Kelly) for Forest Laboratories, Inc., plaintiff.
Peter D. Keisler, Assistant Attorney General; Barbara S.
Williams, Attorney-in-Charge, International Trade Field Office,
Commercial Litigation Branch, Civil Division, United States
Department of Justice (Amy M. Rubin); of counsel: Chi S. Choy,
Office of the Assistant Chief Counsel, International Trade
Litigation, United States Bureau of Customs and Border Protection,
for the United States, defendant.
December 6, 2005
OPINION
TSOUCALAS, Senior Judge: Plaintiff, Forest Laboratories, Inc.
(“Forest Labs”) moves for judgment on the pleadings pursuant to
USCIT R. 12(c) on the ground that there is no genuine issue as to
any material facts. Forest Labs contends that the Bureau of
Court No. 03-00416 Page 2
Customs and Border Protection of the Department of Homeland
Security (“Customs”)1, defendant, is required to reliquidate Forest
Labs’ entries of hydrated hydroxypropyl methylcellulose (“HPMC”)
under subheading 3912.39.00 of the Harmonized Tariff Schedule of
the United States (“HTSUS”) at a free rate of duty. Customs cross-
moves for judgment on the pleadings or, in the alternative, moves
for summary judgment pursuant to USCIT R. 56 stating that its
liquidation at 4.2 percent is correct.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1581(a) (2000).
STANDARD OF REVIEW
USCIT R. 12(c) provides that any party may move for judgment
on the pleadings after the pleadings are closed and if it would not
delay trial. A USCIT R. 12(c) motion “is designed to dispose of
cases where the material facts are not in dispute and a judgment on
the merits can be rendered by looking to the substance of the
pleadings and any judicially noticed facts.” Hebert Abstract Co.
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. 03-00416 Page 3
v. Touchstone Properties, Ltd., 914 F.2d 74, 76 (5th Cir. 1990)
(citations omitted). A motion for judgment on the pleadings may be
granted if the moving party is entitled to judgment as a matter of
law. See N.Z. Lamb Co. v. United States, 40 F.3d 377, 380 (Fed.
Cir. 1994). The Court may convert a motion to dismiss into a
motion for summary judgment under USCIT R. 56 if it relies on
evidence outside the pleadings. See USCIT R. 12(c). “On a motion
for summary judgment, it is the function of the court to determine
whether there are any factual disputes that are material to the
resolution of the action.” Phone-Mate, Inc. v. United States, 12
CIT 575, 577, 690 F. Supp. 1048, 1050 (1988) (citation omitted).
Summary judgment is appropriate only when there are no genuine
issues of material fact and the moving party is entitled to
judgment as a matter of law. See USCIT R. 56; see also Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
A ruling on a motion for judgment on the pleadings is reviewed
under the same standard as a motion to dismiss under USCIT R. 12(b)
for failure to state a claim. See GATX Leasing Corp. v. Nat’l
Union Fire Ins. Co., 64 F.3d 1112, 1114 (7th Cir. 1995). A
district court may not dismiss a complaint for failure to state a
claim “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) (citation
Court No. 03-00416 Page 4
omitted). In deciding a motion to dismiss for failure to state a
claim, as well as a USCIT R. 12(c) motion for judgment on the
pleadings, the Court must accept all well-pleaded facts as true and
view them in the light most favorable to the nonmovant. See C.J.
Tower & Sons of Buffalo, Inc. v. United States, 68 Cust. Ct. 377,
379 (1972); see also 5C Wright & Miller, Federal Practice and
Procedure § 1368 (3d ed. 2004).
DISCUSSION
I. Background
This action involves 35 entries of HPMC. See Def.’s Mem.
Supp. Cross-Mot. J. Pleadings or Alternative Summ. J. Opp’n Pl.’s
Mot. J. Pleadings (“Customs’ Mem.”) at 1. On February 17, 1999,
Forest Labs requested a binding ruling letter on the classification
of HPMC, which has a Chemical Abstract Service (“CAS”) number of
9004-65-3. See Mem. Supp. Pl.’s Mot. J. Pleadings (“Forest Labs’
Mem.”) at 4. In its request, Forest Labs suggested that the HPMC
was correctly classified under subheading 3912.39.00 at a duty rate
of 4.2 percent ad valorem. See id. On March 17, 1999, Customs
issued a ruling letter, NY D88210, agreeing with Forest Labs that
the subject merchandise was classifiable under HTSUS subheading
3912.39.00. See id. at 4-5; see also Customs’ Mem. at 1. In 1999
when Customs issued NY D88210 classifying the HPMC, subheading
3912.39.00 had a duty rate of 4.2 percent ad valorem. See Customs’
Court No. 03-00416 Page 5
Mem. at 19. In NY D88210, however, Customs stated that pursuant to
General Note 13 of the HTSUS, the HPMC was listed in the
pharmaceutical appendix and is thus duty free. See Compl. Ex. B.
Neither the HPMC or its corresponding CAS number are listed in the
pharmaceutical appendix. See Compl. Ex. C. Upon entry of the HPMC
at issue, Customs assessed and liquidated the merchandise at the
duty rate of 4.2 percent ad valorem. See Forest Labs’ Mem. at 5;
Customs’ Mem. at 3. Forest Labs protested the duty assessment and
applied for further review. See Forest Labs’ Mem. at 5. In
response to Forest Labs’ protest, Customs issued HQ 965280. See
id.; Customs’ Mem. at 3. HQ 965280 stated that while the
classification of the merchandise in NY D88210 was correct, a
clerical error resulted in an incorrect statement that the HPMC was
duty free. See Compl. Ex. C at 2. HQ 965280 denied Forest Labs’
protest stating that “a clerical error is exempted from the notice,
publication, and comment procedures otherwise required for
modifications and/or revocations in 19 U.S.C. § 1625(c).” See id.
Subsequently, Forest Labs filed the present action.
II. The Imported Merchandise was Properly Classified and is Not
Entitled to Duty Free Treatment
A. Contentions of the Parties
1. Forest Labs’ Contentions
Forest Labs contends that Customs is bound by NY D88210
Court No. 03-00416 Page 6
because the ruling letter represents Customs’ official position
relating to the proper classification and applicable duty rate for
the subject HPMC. See Forest Labs’ Mem. at 9-21. In order for
Customs to change its position that HPMC is entitled to duty free
treatment, Customs must modify or revoke its determination pursuant
to the procedures set forth in 19 U.S.C. § 1625(c). See id. at 9.
Here, however, Customs did not modify or revoke NY D88210. Rather,
Customs assessed a duty of 4.2 percent ad valorem on Forest Labs’
entries of HPMC at liquidation and ignored its previously stated
determination in NY D88210. See id. Forest Labs asserts that
Customs’ actions were in contravention of its regulations and of 19
U.S.C. §§ 1502 & 1625. See id. Accordingly, Forest Labs maintains
that Customs was required to liquidate its entries of HPMC at the
free rate of duty under NY D88210. See id. at 7-8. Forest Labs
requests that the subject HPMC be reliquidated at the free rate of
duty as stated in NY D88210 with a refund and interest as provided
by law. See id. at 22.
Specifically, Forest Labs asserts that Customs’ regulations
set forth the procedures for requesting binding ruling letters.
See Forest Labs’ Mem. at 9. Pursuant to 19 C.F.R. § 177, Customs
issues a statement which interprets and applies customs laws to a
specific set of facts upon request from a party seeking a ruling
letter. See id. Forest Labs maintains that a ruling letter, such
Court No. 03-00416 Page 7
as NY D88210, “represents the official position of Customs and is
binding on all Customs Service personnel until it is modified or
revoked.” Id. at 10. Accordingly, for Customs to change the duty
rate of the imported HPMC under 19 U.S.C. § 1625 and 19 C.F.R §
177.9, Customs is required to modify or revoke NY D88210. See id.
at 11. Moreover, 19 U.S.C. § 1625(c) “requires Customs to apply
notice-and-comment procedures” to modify or revoke a prior
interpretive ruling. Id. Customs, however, states it has not
revoked or modified NY D88210 because its assertion that the
subject HPMC was entitled to a duty free rate was the result of
clerical error. See id. Forest Labs argues that Customs’
determination in NY D88210 “was an error in the construction of the
law, not a clerical error.” Id. at 12. To correct an error in the
construction of law, Customs must follow the procedures set forth
by 19 U.S.C. § 1625(c). See id. Forest Labs notes that even if HQ
965280 had the effect of modifying NY D88210, such modification may
not be applied retroactively. See id. at 15. The increase in duty
rate assessed on the subject merchandise, therefore, is contrary to
law. See id. at 14-15.
Finally, Forest Labs contends that a clerical error is a
mistake made by a person “upon whom devolves no duty to exercise
judgment, in writing or copying the figures or in exercising his
intention.” Id. at 16 (citing PPG Indus., Inc. v. United States,
Court No. 03-00416 Page 8
7 CIT 118, 123 (1984)). Here, the individual at Customs
responsible for reviewing Forest Labs’ ruling request was “charged
with interpreting the HTSUS and the Customs laws and regulations.”
Id. Forest Labs asserts that the error committed in NY D88210 was
a flawed application of General Note 13 of the HTSUS and does not
fall within the meaning of “clerical error.” See id. Even if
Customs’ determination was a clerical error, Forest Labs argues
that Customs failed to provide sufficient notice of its decision
modifying NY D88210. See id. at 17-21. Forest Labs asserts that
without such notice, “the ruling remains in effect and Forest
[Labs’] importations of HPMC are entitled to the free rate of
duty.” Id. at 17. Forest Labs maintains that NY D88210 represents
Customs’ official position binding Customs officers throughout the
United States, and that the HPMC at issue satisfied General Note 13
thereby qualifying for duty free treatment. See Pl.’s Reply Opp’n
Def.’s Cross-Mot. J. Pleadings at 3.
2. Customs’ Contentions
Customs replies that Forest Labs has failed to establish that
the imported HPMC qualifies for the duty free rate under subheading
3912.39.00 of the HTSUS. See Customs’ Mem. at 8-9. Specifically,
Customs asserts that the imported merchandise is not entitled to
the duty free rate because it is not included in the pharmaceutical
appendix of the HTSUS. See id. at 8. Pursuant to General Note 13
Court No. 03-00416 Page 9
of the HTSUS, the HPMC at issue cannot be imported duty free. See
id. at 8-9. Moreover, Customs contends that granting Forest Labs’
claim would violate 19 U.S.C. § 1625. See id. at 9-14. Customs
argues that the erroneous duty rate espoused in NY D88210 “cannot
be construed as a policy statement that requires notice and
comment” under 19 U.S.C. § 1625(c). Id. at 10. Customs contends
that it “merely liquidated Forest Labs’ entries and applied the
duty rate applicable to the tariff provision under which the
merchandise was classified.” Id. By liquidating and assessing the
applicable duty rate, Customs argues that it did not make an
interpretive ruling or decision, but instead made a “final
computation of the duties due and owing on an entry.” Id. at 11.
Customs further argues that even if HQ 965280 is viewed as a
“proposed interpretive ruling or decision” which modifies NY
D88210, the only “official opinion” from the letter is “the
determination that the merchandise described therein is
classifiable under subheading 3912.39.00.” Id. It is Congress,
not Customs that establishes the duty rates contained in HTSUS and
that Customs has no authority to amend those rates. See id.
Customs argues that it has no authority to adopt an “official
position” regarding any aspect of the tariff statute that surpasses
the powers granted to it by Congress. See id.
Court No. 03-00416 Page 10
Customs further asserts that even if NY D88210 is interpreted
as representing its official position, the duty free rate should
not apply because NY D88210 was the result of a clerical error.
See id. at 14. As such, it is “exempt from the requirements of 19
U.S.C. § 1625(c).” Id. Customs admits that it erred in failing to
note the 1997 Presidential Proclamation, which removed HPMC from
the pharmaceutical appendix eliminating its duty free status. See
id. at 16. Customs argues that as the duty rate was “erroneously
copied” from an earlier document, the act of transposing the
incorrect duty rate is “clearly covered by the definitions of
clerical error.” Id. at 17.
Finally, Customs argues that Forest Labs did not act in “good
faith” through its “failure to timely notify Customs of the known
error in NY D88210 and its attempt to take advantage of that error
by entering its merchandise ‘duty free’.” Id. at 24. Customs
states that had it incorrectly identified a duty rate higher than
4.2 percent, “Forest Labs would have notified Customs of the error
well within 60 days after issuance and would not have willingly
entered its merchandise at that rate.” Id. at 24 (emphasis
retained). Customs maintains that NY D88210 did not represent its
official position and the mistake was a result of a clerical error
which Forest Labs took advantage of in bad faith. See id. at 7-8.
Court No. 03-00416 Page 11
B. Analysis
Customs does not have the authority to either intentionally or
accidentally impose a duty rate that differs from that which has
been authorized by Congress through the HTSUS. See Jewelpak Corp.
v. United States, 20 CIT 1402, 1409-10, 950 F. Supp. 343, 350
(1996) (stating “Customs does not set the duty rates. Only
Congress is empowered to lay and collect taxes (including duties).
Congress approved the duty rates in the tariff statute and Customs
simply applies the rates to goods.”). Customs is empowered to
classify imported merchandise under the correct HTSUS heading. See
19 U.S.C. § 1500 (1994). The general power to modify the HTSUS
belongs exclusively to Congress. See 19 U.S.C. § 3004 (1994).
Congress has given the President limited authority to make
modifications to the HTSUS based solely within the framework of
statutorily defined objectives. See generally, id.; 19 U.S.C. §
3521 (1994). On April 1, 1997, President Clinton exercised this
limited authority and removed HPMC from the duty free
pharmaceutical appendix. See Proclamation No. 6982, 62 Fed. Reg.
16,039 (Apr. 3, 1997). All material events in the case at bar
occurred after Presidential Proclamation 6982 went into effect, and
HPMC was thus properly classifiable under subheading 3912.39.00
with a duty rate of 4.2 percent ad valorem. See Forest Labs’ Mem.
at 4; Customs’ Mem. at 1.
Court No. 03-00416 Page 12
The Court holds that Customs properly liquidated the subject
HPMC at 4.2 percent ad valorem. NY D88210 properly classifies the
subject HPMC under subheading 3912.39.00. See Forest Labs’ Mem. at
4; Customs’ Mem. at 1. Customs does not have the authority to
assess a rate of duty other than that which is listed in the HTSUS.
See Jewelpak Corp., 20 CIT at 1409-10, 950 F. Supp. at 350. The
HPMC was not listed in the duty free pharmaceutical appendix. See
Proclamation No. 6982, 62 Fed. Reg. at 16,041. The applicable duty
rate for the subject HPMC at the time of entry was 4.2 percent ad
valorem. See HTSUS subheading 3912.39.00. Listing a no duty rate
in NY D88210 was a misstatement because Customs is not empowered to
assess a duty rate that differs from that listed in the HTSUS.
Forest Labs argues that the misstated duty rate was within the
type of error that required notification on the part of Customs.
See Forest Labs’ Mem. at 9. The Court does not agree. 19 U.S.C.
§ 1625(c) requires notification when Customs modifies or revokes
“a prior interpretive ruling or decision.” See 19 U.S.C. § 1625(c)
(1994). The case at bar does not deal with an ‘interpretive
ruling’ which Customs is authorized to make, such as the
classification of imported merchandise. See 19 U.S.C. § 1500.
Instead, it deals with a misstated duty rate. Forest Labs is not
arguing an error in classification. See Forest Labs’ Mem. at 4.
They agree with the classification but argue that since Customs
Court No. 03-00416 Page 13
listed the wrong duty rate, Customs is required to abide by the
notification requirements of 19 U.S.C. § 1625(c) by issuing a
modification or revocation of NY D88210. See id. at 11. As
Customs is not empowered to set duty rates, the duty rate assessed
at liquidation is not a modification under authority of law which
would have required notice as set forth in 19 U.S.C. § 1625(c).
The duty rate listed in the HTSUS for the subject merchandise is
4.2 percent ad valorem and Customs’ is not empowered to state
otherwise.2 Thus, Customs liquidated Forest Labs’ HPMC at the
correct duty rate and, despite Customs’ correction of the
originally misstated duty rate, notice was not required.
C. Conclusion
The Court holds that Customs has no legal authority to impose
a duty rate on goods that differ from the rates listed in the
HTSUS. Accordingly, the Court holds that Customs correctly
liquidated Forest Labs’ entries of HPMC under subheading 3912.39.00
2
Forest Labs cites Int’l Custom Prod., Inc. v. United
States, 29 CIT ___, ___, 374 F. Supp. 2d 1311, 1333 (2005), as an
example of this Court requiring notification when Customs alters
its own ruling. Int’l Custom Prod. involves a modification to a
ruling made by Customs based on a reevaluation of a classification.
See id., 29 CIT at ___, 374 F. Supp. 2d at 1328-29. Int’l Custom
Prod. is not applicable here because the present case does not deal
with classification, but with tariff rates instead. Since Customs
is authorized to classify imported goods but not to alter tariff
rates as listed in the HTSUS, the case at bar differs substantially
from Int’l Custom Prod. and thus the notification requirements of
19 U.S.C. § 1625(c) are not required.
Court No. 03-00416 Page 14
at 4.2 percent ad valorem. The Court is unpersuaded by all other
arguments. Plaintiff’s motion for judgment on the pleadings is
denied and Defendant’s cross-motion for judgment on the pleadings
is granted. Defendant’s motion in the alternative for summary
judgment is moot. Judgment will be entered accordingly.
/s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE
Dated: December 6, 2005
New York, New York