Saab Cars USA, Inc. v. United States

Slip Op. 03-82

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: HON. RICHARD W. GOLDBERG, SENIOR JUDGE

SAAB CARS USA, INC.,

Plaintiff,
PUBLIC VERSION
v.
Court No. 00-00041
UNITED STATES,

Defendant.

[Plaintiff’s motion for summary judgment is denied, and
Defendant’s motion for summary judgment is denied.]

Date: July 14, 2003

Gibson, Dunn & Crutcher LLP (Judith A. Lee and Brian J. Rohal)
for plaintiff Saab Cars USA, Inc.

Peter D. Keisler, Assistant Attorney General; John J. Mahon,
Acting Attorney in Charge; and Barbara S. Williams, Civil
Division, Commercial Litigation Branch, United States Department
of Justice; Paula Smith, Office of Assistant Chief Counsel,
International Trade Litigation, United States Bureau of Customs
and Border Protection, Of Counsel, for defendant United States.

OPINION

GOLDBERG, Senior Judge: Saab Cars USA, Inc. (“SCUSA”) imports

into the United States automobiles from Swedish manufacturer Saab

Automobile AB (“Saab Auto”). SCUSA protested the United States

Customs Service’s1 (“Customs”) liquidation of several entries of

1
The United States Customs Service has since become the
Bureau of Customs and Border Protection per the Homeland Security
Act of 2002, § 1502, Pub. L. No. 107-296, 116 Stat. 2135, 2308-09
(Nov. 25, 2002), and the Reorganization Plan Modification for the
Department of Homeland Security, H.R. Doc. 108-32, p. 4 (Feb. 4,
Court No. 00-00041 Page 2

automobiles that were appraised at transaction value. In the

protests, SCUSA argued that an allowance in value should be

granted for defects present in the automobiles at importation.

Customs denied SCUSA’s protests.

SCUSA timely appealed Customs’ denial of those protests to

the Court of International Trade on January 20, 2000. On March

6, 2001, SCUSA filed a motion for summary judgment requesting a

partial refund of duties for the defective automobiles. Customs

filed a cross-motion for summary judgment on June 4, 2001,

requesting that the Court dismiss this action. For the reasons

that follow, both parties’ motions for summary judgment are

denied.

I. BACKGROUND

SCUSA imports into the United States automobiles

manufactured by Saab Auto. The automobiles purchased by SCUSA

from Saab Auto are subject to a warranty agreement (the

“Warranty”). The terms of the Warranty are contained in the

Warranty Policy and Procedures Manual dated January 11, 1995, and

updated by warranty policy letters. According to SCUSA, the

terms of the Warranty reimbursed SCUSA for the following specific

repair expenses: (1) “pre-warranty,” which covers [

], but does not include damage from [

2003).
Court No. 00-00041 Page 3
]; (2) new car warranty, covering the car when it [

]; (3) emission warranty, when [

];

(4) perforation warranty, which covers [

]; and (5) the importer’s own

extended warranty. Warranty Manual, Plaintiff’s Exhibit 1

(Confidential), ¶ 4.2.1.

To claim reimbursement from Saab Auto under the terms of the

Warranty, the retailer must submit the repairs to SCUSA’s AS-400

Warranty System. The AS-400 Warranty System is a database system

designed for SCUSA to track the automobile repairs which

correspond to each Vehicle Identification Number (“VIN”). The

AS-400 Warranty System also runs a series of “edits” to confirm

that the repair was subject to the Warranty. In addition, Saab

Auto requires SCUSA (along with other importers) to audit

dealers’ warranty repair claims to [

]

At issue in this case are entries of automobiles SCUSA

imported from Saab Auto between June of 1996 and July of 1997.

At the time of importation, SCUSA declared the transaction value

of the automobiles to be the price it paid Saab Auto for defect-

free automobiles. While the vehicles were still at the port,

SCUSA claims it identified defects in certain automobiles. The
Court No. 00-00041 Page 4
defects were repaired by SCUSA. The costs associated with the

repairs are “port repair expenses” and are documented either

through the AS-400 Warranty System or through invoices sent to

SCUSA. The total port repair expenses claimed by SCUSA are

[ ].

Prior to expiration of the Warranty period, but after the

vehicles were shipped from the port, additional defects were

discovered in the vehicles. To restore the vehicles to defect-

free condition the dealers repaired the vehicles. The costs

associated with those repairs represent SCUSA’s “warranty

expenses.” The total warranty expenses claimed by SCUSA at the

outset of this litigation was [ ].

Customs liquidated the entries, appraising the vehicles at

their transaction values. SCUSA protested the liquidations,

requesting allowances under 19 C.F.R. § 158.12 for “damage [or]

latent manufacturing defects.” The following protests were filed

by SCUSA to request the allowances: (1) protest number 0502-98-

100033, filed on June 30, 1998; (2) protest number 0502-98-

100041, filed on September 14, 1998; (3) protest number 0502-99-

100003, filed on January 12, 1999; and (4) protest number 0502-

99-100008, filed on March 26, 1999. The protests correspond to

the following entry numbers:
Court No. 00-00041 Page 5

PROTEST NUMBER ENTRY NUMBER (112-
0502-98-100033 9896032-6*, 9903676-1*, 9850980-0*,
9873165-1*, 9876403-3*, 9885094-9*,
9906444-1*, 9915803-7*, 9888725-5*,
9891683-1*, 9910140-9*, 9978449-3,
9011040-0, 9995282-7
0502-98-100041 9805210-8*, 9814363-4*, 9818038-8*,
9822519-1*, 9826593-2*, 9970288-3*,
9978449-3, 9801057-7*, 9964040-6*,
9964123-0*, 9940682-4*, 9022943-2,
9026932-1, 9974345-7, 9929365-1,
9930525-7, 9933194-3, 9958484-4,
9968124-4, 9983272-2, 9986698-5,
9006647-9, 9016015-7, 9018813-3,
9030595-0, 9943632-6, 9947519-1,
9950291-1
0502-99-100003 9016015-7, 9018813-3
0502-99-100008 9936275-3
* SCUSA and Customs have now agreed that the Court does not
possess jurisdiction over these entries because they were not
timely protested.

SCUSA penned the following in each of its protests:

We protest the appraised value of automobiles contained
in the entries set forth in Attachment A.

The automobiles listed in these entries were purchased
by [SCUSA] from Saab Automobile AB. SCUSA ordered
perfect merchandise from Saab Automobile AB. Despite
this order, some of the vehicles delivered contained
latent manufacturing defects at the time of
importation. Section 158.12 of the Customs
Regulations, 19 C.F.R. 158.12, provides that
‘merchandise which is subject to ad valorum or compound
duties and found by the port director to be partially
damaged at the time of importation shall be appraised
in its condition as imported, with an allowance made in
the value to the extent of the damage.’ See Samsung
Electronics America, Inc. vs. United States, 106 F.3d
376 (CAFC 1997).

Therefore, pursuant to 19 C.F.R. § 158.12, an allowance
in the value of the imported vehicles set forth in the
Court No. 00-00041 Page 6
protested entries should have been made to the [sic]
reflect the extent of the defects. We hereby request
that the protested entries be reliquidated and that the
vehicles set forth therein be appraised in the
condition as imported. In addition, we request that
Customs delay its consideration of this protest until
the Court of International Trade (“CIT”) has issued its
decision on remand in the Samsung case. Based on
instructions from the Court of Appeals, the anticipated
CIT decision will clarify how the § 158.12 allowance
will be implemented.2

SCUSA Protest, Nos. 0502-98-100033 (June 30, 1998), 0502-98-

100041 (Sept. 14, 1998), 0502-99-100003 (Jan. 12, 1999), 0502-00-

100008 (March 26, 1999). These protests were denied by Customs

on August 9, 1999, citing “no evidence of damage at time of

import” as the only reason for denial.

SCUSA filed a timely summons before the Court on January 20,

2000, and filed the complaint on August 11, 2000. SCUSA has

submitted to the Court the VINs and corresponding repair

descriptions for all of the entries protested. The Court, upon

cursory review of the repair descriptions submitted as evidence

by SCUSA, estimates there are approximately 108,000 port and

2
Customs contends that SCUSA’s protest was not valid
because it did not meet the specificity requirements of 19 U.S.C.
§ 1514(c), see infra at 8-15. Customs quoted only the last
paragraph of SCUSA’s three-paragraph protest in its initial
brief, which is misleading when arguing that the language of the
protest is insufficient. Customs later contended that it only
quoted the last paragraph because the first two were “merely
introductory.” However, the Court has found that many of the
specificity requirements were addressed in the first two
paragraphs omitted by Customs.
Court No. 00-00041 Page 7
Warranty repairs covered by the protests. The Court has

jurisdiction pursuant to 28 U.S.C. § 1581(a).

II. STANDARD OF REVIEW

This case is before the Court on SCUSA’s motion for summary

judgment and Customs’ cross-motion for summary judgment. The

court will grant summary judgment “if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law.” USCIT R. 56(d). A party opposing

summary judgment must “go beyond the pleadings” and by his or her

own affidavits, depositions, answers to interrogatories, and

admissions to file, designate “specific facts showing that there

is a genuine issue for trial.” Celotex Corp. v. Catrett, 477

U.S. 317, 324 (1986). “While it is true that Customs’ appraisal

decisions are entitled to a statutory presumption of correctness,

see 28 U.S.C. § 2639(a)(1), when a question of law is before the

Court, the statutory presumption of correctness does not apply.”

Samsung Electronics America, Inc. v. United States, 23 CIT 2, 5,

35 F. Supp. 2d 942, 945-46 (1999) (citing Universal Elecs., Inc.

v. United States, 112 F.3d 488, 492 (Fed. Cir. 1997))

(hereinafter “Samsung III”).
Court No. 00-00041 Page 8
III. DISCUSSION

A. Jurisdictional Issues

The Court has “exclusive jurisdiction of any civil action

commenced to contest the denial of a protest, in whole or in

part, under section 515 of the Tariff Act of 1930.” 28 U.S.C. §

1581(a) (2000). Therefore, a prerequisite to jurisdiction by the

Court is the denial of a valid protest. Washington Int’l Ins.

Co. v. United States, 16 CIT 599, 601 (1992). Based on the

following analysis, the Court concludes that SCUSA filed a valid

protest, and thus the Court has jurisdiction.

A protest is required to “set forth distinctly and

specifically” the following information: (1) “each decision . . .

as to which protest is made”; (2) “each category of merchandise

affected by each decision . . .”; and (3) “the nature of each

objection and the reasons therefor.” 19 U.S.C. § 1514(c)(1)

(2000). The implementing regulations expand the requirements,

specifying that the protest must include “[a] specific

description of the merchandise affected by the decision as to

which protest is made”; and “[t]he nature of, and justification

for the objection set forth distinctly and specifically with

respect to each category, payment, claim, decision, or refusal.”

19 C.F.R. § 174.13(a) (2002).
Court No. 00-00041 Page 9
In the seminal case Davies v. Arthur, 96 U.S. 148 (1877),

the Supreme Court articulated the rationale for the specificity

required of protests:

Protests . . . must contain a distinct and clear
specification of each substantive ground of objection
to the payment of the duties. Technical precision is
not required; but the objections must be so distinct
and specific, as, when fairly construed, to show that
the objection taken at the trial was at the time in the
mind of the importer, and that it was sufficient to
notify the collector of its true nature and character
to the end that he might ascertain the precise facts,
and have an opportunity to correct the mistake and cure
the defect, if it was one which could be obviated.

Davies v. Arthur, 96 U.S. at 151.

Customs contends that the protests filed by SCUSA were not

“distinct and specific,” since SCUSA did not (a) tie specific

repairs to specific entries and give the dollar amounts for the

repairs; (b) state the amount of the allowance claimed; or (c)

identify the claimed defects. Under Customs’ reasoning, the

protests’ deficiencies undermined the rationale for requiring

specificity, namely to notify Customs of the true nature of

SCUSA’s protests so that Customs could correct any defect.

Customs argues that this case is similar to Washington, because

the claimed deficiencies in the protests would “‘eviscerate the

protest requirements mandated by Congress and effectively require

Customs to scrutinize the entire administrative record of every

entry in order to divine potential objections and supporting

arguments which an importer meant to advance.’” Memorandum in
Court No. 00-00041 Page 10
Support of Defendant’s Cross-Motion for Summary Judgment and in

Opposition to Plaintiff’s Motion for Summary Judgment, 11 (June

4, 2001)(quoting Washington, 16 CIT 601, 604).

The Court concludes that Customs’ argument is not

persuasive. In Washington, the principal case upon which Customs

relies, the court held that an importer’s protest of a Customs’

classification ruling was not valid because it did not counter

with its own asserted classification. In that context, the Court

found that the protests deficiencies required Customs to analyze

the entire administrative record to determine every possible

classification the importer could assert, and argue against each

possibility.

The critical distinction between this case and Washington is

that SCUSA is not challenging a classification. There is no

alternative classification for SCUSA to propose. Ideally, in

challenging a classification an importer would provide Customs

with the alternative(s) so that Customs could analyze sample

evidence to determine the classification for the entire shipment.

In this case SCUSA has provided Customs with the regulation to

apply: SCUSA protested the liquidation under 19 C.F.R. § 158.12,

requesting an allowance for defective merchandise. Unlike the

protest in Washington, Customs does not have to contemplate all

of the statutory and regulatory provisions pertaining to

liquidation to determine why SCUSA is protesting the liquidation.
Court No. 00-00041 Page 11
Customs’ real concern with SCUSA’s protests is that the protests

will require Customs to evaluate the evidence of each repair to

determine if the repaired defect existed at the time of

importation, admittedly a time-consuming task. But the task

remains the same even if SCUSA listed all of the various defects

in its protest. Customs would still have to analyze the evidence

of repairs for every automobile, since the defects claimed are

not uniform throughout the entries. Customs simply cannot avoid

sifting through the entire evidentiary record in this type of

claim.

Although SCUSA’s protests are distinct and specific in the

spirit of Davies, SCUSA’s protests must contain the statutory and

regulatory required elements for a valid protest. Because SCUSA

has set forth in its protest all of the required elements, SCUSA

has filed valid protests and the appeal from them is properly

before the Court.

(1) SCUSA’s protests identified the decision protested

The regulations require the protestant to identify the

decision “with respect to each category, payment, claim,

decision, or refusal.” 19 C.F.R. § 174.13(a). SCUSA identified

each entry which it protested under § 158.12 and identified the

decision as to which the protest was made, “the appraised value

of automobiles contained in the entries set forth in Attachment

A.” Attachment A lists the entry numbers for entries of both
Court No. 00-00041 Page 12
defective and non-defective vehicles. Customs contends that

SCUSA was required to identify each defective vehicle, not simply

identify entries that contained some defective vehicles. By

including non-defective vehicles in the protests, Customs

complains it is required to go through every entry and ascertain

which vehicles were defective. The statute does not require that

level of specificity in the protests, and as previously

discussed, supra at 9-11, Customs cannot avoid sifting through

each entry to evaluate the evidence of defects.

(2) SCUSA identified the category of merchandise

SCUSA identified the only category of the merchandise at

issue, namely referring to “automobiles,” and attaching the

contested entries to the protest.

(3) SCUSA identified the nature of each objection

SCUSA set forth the nature of its objection and the reason

therefor in the identical language of each of its protests:

SCUSA ordered perfect merchandise from Saab Automobile
AB. Despite this order, some of the vehicles delivered
contained latent manufacturing defects at the time of
importation. Section 158.12 of the Customs
Regulations, 19 C.F.R. 158.12, provides that
‘merchandise which is subject to ad valorum or compound
duties and found by the port director to be partially
damaged at the time of importation shall be appraised
in its condition as imported, with an allowance made in
the value to the extent of the damage.’ See Samsung
Electronics America, Inc. vs. United States, 106 F.3d
376 (CAFC 1997).

Therefore, pursuant to 19 C.F.R. § 158.12, an allowance
in the value of the imported vehicles set forth in the
protested entries should have been made to the [sic]
Court No. 00-00041 Page 13
reflect the extent of the defects. We hereby request
that the protested entries be reliquidated and that the
vehicles set forth therein be appraised in the
condition as imported. In addition, we request that
Customs delay its consideration of this protest until
the Court of International Trade (“CIT”) has issued its
decision on remand in the Samsung case. Based on
instructions from the Court of Appeals, the anticipated
CIT decision will clarify how the § 158.12 allowance
will be implemented.

SCUSA Protest (emphasis added). The language of the protests and

Attachment A’s do not reference the specific vehicles that were

defective or the types of latent defects, or tie the defects to

specific vehicles. However, these are not fatal flaws in the

protests. In Mattel v. United States, the court stated that the

“one cardinal rule in construing a protest is that it must show

fairly that the objection afterwards made at the trial was in the

mind of the party at the time the protest was made and was

brought to the knowledge of the collector to the end that he

might ascertain the precise facts and have an opportunity to

correct the mistake and cure the defect if it was one that could

be obviated.” 72 Cust. Ct. 257, 260, 377 F. Supp. 955, 959

(1974)(citing Bliven v. United States, 1 Ct. Cust. 205, 207 (Ct.

Cust. App. 1911)). Customs contends the absence of precise facts

makes the protests invalid. As they stand, the protests clearly

notified Customs of the reason for the protests, latent defects

in the automobiles. The protests should have then prompted

Customs to seek the precise factual evidence necessary to

evaluate the protests. SCUSA’s protests clearly contest the
Court No. 00-00041 Page 14
appraised values of the entries because many of the vehicles

allegedly contained latent defects, and clearly request an

allowance commensurate with those defects under § 158.12.

There is one problem with SCUSA’s protests that limits the

Court’s jurisdiction. It is clear that SCUSA had in mind at the

time of protest defective automobiles that had already been

repaired; however, SCUSA could not have had in mind defects to

automobiles that had not been repaired before the protests were

filed. Therefore, the Court does not have jurisdiction over the

automobiles that were repaired after the date SCUSA filed its

protests with Customs.3 See Mattel, 72 Cust. Ct. at 260, 377 F.

Supp. at 959 (“a protest . . . must show fairly that the

objection afterwards made at the trial was in the mind of the

party at the time the protest was made”). As a result, the Court

does not have jurisdiction over vehicles repaired after June 30,

1998, that were in the entries covered by protest 0502-98-100033.

3
SCUSA styled its request for re-liquidation as § 1514
protests, most of which were filed within 90 days of liquidation,
and therefore were protested timely. Section 158.12, which
provides for a refund of duties if the goods were defective at
the time of importation, has no time limit to request the refund.
Because SCUSA filed its request as a protest, the Court does not
opine at this time on whether SCUSA could have filed a request
for reconsideration under § 1520 or directly under § 158.12, and
then protest a denial of that request. See, e.g., HRL 547062,
May 7, 1999 (In a section § 158.12 claim, Protestant first filed
a claim under § 520(c) of the Tariff Act to seek a reduction in
the appraised value because the goods were defective when
imported. Protestant later filed a protest when the § 520(c)
claim was rejected.).
Court No. 00-00041 Page 15
The Court does not have jurisdiction over vehicles repaired after

September 14, 1998, that were in the entries covered by protest

0502-98-100041. The Court does not have jurisdiction over

vehicles repaired after January 12, 1999, that were in the

entries covered by protest 0502-99-100003. Finally, the Court

does not have jurisdiction over vehicles repaired after March 26,

1999, that were in the entries covered by protest 0502-99-100008.

Customs and SCUSA agree that twenty-one entries which SCUSA

challenged in the initial complaint were not protested in a

timely manner. Therefore, the Court dismisses for lack of

jurisdiction entries 112-9805210-8, 112-9814363-4, 112-9818038-8,

112-9822519-1, 112-9826593-2, 112-9896032-6, 112-9903676-1, 112-

9850980-0, 112-9873165-1, 112-9876403-3, 112-9885094-9, 112-

9906444-1, 112-9915803-7, 112-9888725-5, 112-9891683-1, 112-

9910140-9, 112-9970288-3, 112-9801057-7, 112-9964040-6, 112-

9964123-0, and 112-9940682-4. The Court retains jurisdiction

over vehicles repaired prior to their respective protest dates in

the remaining 24 entries: 112-9978449-3, 112-9011040-0, 112-

9995282-7, 112-9978449-3, 112-9022943-2, 112-9026932-1, 112-

9974345-7, 112-9929365-1, 112-9930525-7, 112-9933194-3, 112-

9958484-4, 112-9968124-4, 112-9983272-2, 112-9986698-5, 112-

9006647-9, 112-9016015-7, 112-9018813-3, 112-9030595-0, 112-

9943632-6, 112-9947519-1, 112-9950291-1, 112-9016015-7, 112-
Court No. 00-00041 Page 16
9018813-3, and 112-9936275-3 (collectively, the “subject

entries”).

B. The Evidence Submitted by SCUSA

19 C.F.R. § 158.12 allows an importer to claim an allowance

in value for merchandise partially damaged at the time of

importation.4 “A protestant qualifies for an allowance in

dutiable value where (1) imported goods are determined to be

partially damaged at the time of importation, and (2) the

allowance sought is commensurate to the diminuation in the value

of the merchandise caused by the defect.” Samsung III, 23 CIT at

6, 35 F. Supp. 2d at 946. Customs opposes SCUSA’s claims under §

158.12 because (A) § 158.12 does not cover damaged goods when the

damage was not discovered at importation; and (B) SCUSA has not

provided adequate evidence to overcome the presumption of

correctness afforded Customs’ denial of SCUSA’s protests.

(1) Section 158.12 Covers Damage Undiscovered at Time of
Importation

Customs’ first challenge to the substance of SCUSA’s claim

under § 158.12 is that this section does not apply to latent

4
The relevant part of § 158.12 reads:
(a) Allowance in value. Merchandise which is subject
to ad valorem or compound duties and found by the port
director to be partially damaged at the time of
importation shall be appraised in its condition as
imported, with an allowance made in the value to the
extent of the damage. However, no allowance shall be
made when forbidden by law or regulation . . . .

19 C.F.R. § 158.12 (2002).
Court No. 00-00041 Page 17
damage which was undiscovered at the time of importation. SCUSA,

however, argues that the section applies to defects existing at

the time of importation, even if those defects remain

undiscovered until some time after entry.

The United States Code is silent on the interpretation of 19

C.F.R. § 158.12. In the face of Congress’s silence, the Court

will defer to Customs’ interpretation of its own regulations.

See Torrington Co. v. United States, 82 F.3d 1039, 1050 (Fed.

Cir. 1996). The Court will give no deference to an

interpretation advanced solely for litigation purposes. See

Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988)

(“[W]e have declined to give deference to an agency counsel’s

interpretation of a statute where the agency itself has

articulated no position on the question, . . .”); see also

Chrysler Corp. v. United States, 24 CIT 75, 80 at n. 4; 87 F.

Supp. 2d 1339, 1344 (2000) (the court refused to defer to

Customs’ interpretation of its regulation advanced solely for

litigation purposes); RHP Bearings Ltd. v. United States, 23 CIT

967, 982 n. 10, 83 F. Supp. 2d 1322, 1336 (1999) (U.S. Department

of Commerce’s post hoc rationale for its determination, as set

forth during litigation, is given no deference).

Customs cites no prior headquarters rulings or

administrative actions that interpret the regulation to apply

only to defects discovered at the time of importation. A review
Court No. 00-00041 Page 18
of prior Customs rulings on this point reveals quite the

opposite. See, e.g., Headquarters Ruling Letter (“HRL”) 547060

(March 8, 2000) (“value adjustments can only be made where there

is clear and convincing evidence to establish that the

merchandise was defective at the time of importation”) (emphasis

added), HRL 546761 (Sept. 23, 1999) (“clear and convincing

evidence to establish that the merchandise was defective at the

time of importation”) (emphasis added), HRL 227971 (June 29,

1999) (noted that the Samsung Electronics America, Inc. v. United

States, 19 CIT 1307, 904 F. Supp. 1403 (1995) (“Samsung I”),

Court found that “remoteness of time of discovery of defects goes

to the weight of evidence,” when defects were not discovered

until customers made returns “quite some time” after

importation), HRL 547042 (June 17, 1999) (defects discovered

“after importation”), HRL 547062 (May 7, 1999) (protest under 19

C.F.R. § 158.12 granted when protest was filed more than one year

after entry), HRL 543061 (May 24, 1983) (“defects discovered

within the statutory protest period” is one factor to determining

if an allowance should be given). Customs consistently

emphasized that its concern was whether the defects existed at

the time of importation, and not whether, at importation, the

port director discovered the defects. It is quite clear that

this anemic argument by Customs has been advanced purely for

litigation, and as such, the Court will give no deference to
Court No. 00-00041 Page 19
Customs’ purported interpretation of 19 C.F.R. § 158.12.

Therefore, the Court turns to the language of the regulation to

determine its meaning.

Section 158.12 reads, in part, “[m]erchandise . . . found by

the port director to be partially damaged at the time of

importation shall be appraised in its condition as imported....”

19 C.F.R. § 158.12. Customs emphasizes “found by the port

director . . . at the time of importation,” interpreting the

regulatory language to mean that the port director had to find

the damage at the time of importation in order for § 158.12 to

apply to the subject entries. SCUSA emphasizes “partially

damaged at the time of importation” to conclude that the

regulatory language only requires that the damage claimed under §

158.12 existed at the time of importation. Under SCUSA’s

interpretation the port director did not need to find the damage

at the time of importation.

The Court adopts SCUSA’s interpretation of the language of §

158.12. If the intended result was to limit § 158.12 claims to

damages discovered at the time of importation, the regulation

could have easily been written to read “found by the port

director at the time of importation to be partially damaged.”

That version of the regulation may have limited claims under §

158.12 to goods with damage ascertainable to the port director at
Court No. 00-00041 Page 20
the time of importation.5 However, as the regulation now stands,

the language limits claims under § 158.12 to goods partially

damaged when imported, whenever that damage is discovered. The

regulatory language further supports the Court’s interpretation

because § 158.12 contains no time limit on claims under the

section. Further, the Statement of Administrative Action (“SAA”)

provides interpretative guidance, stating that “[w]here it is

discovered subsequent to importation that the merchandise being

appraised is defective, allowances will be made.” SAA, H.R. Doc.

No. 153, Pt. II, 96th Cong., 1st Sess. (1979). The language of

the SAA points to discovery of the defect sometime after the

merchandise is imported, arguably contradicting Customs’ new

assertion that the discovery must be made at the time of

importation. At minimum, the SAA certainly does not support a

requirement that the port director discover the defect at

importation.

It is also notable that the regulation’s history in this

Court, offered by Customs, does not contradict the Court’s

5
Even Customs admits that in practice it has not read the
regulation so strictly as to require the port director to have
found the damage at the time of importation. In a footnote,
Customs acknowledges it has been lenient in allowing importers to
claim allowances under § 158.12 when the port director could have
found the defects at the time of importation, such as defects
discovered shortly after importation. See Memorandum in Support
of Defendant’s Cross-Motion for Summary Judgment and in
Opposition to Plaintiff’s Motion for Summary Judgment, p. 19 n.
12.
Court No. 00-00041 Page 21
interpretation of § 158.12. As Customs correctly points out, the

series of Samsung cases does not directly address whether §

158.12 covers damage which was not discovered by the port

director at the time of importation. See Samsung I; Samsung

Electronics America, Inc. v. United States, 106 F.3d 376 (Fed.

Cir. 1997) (“Samsung II”); Samsung III; Samsung Electronics

America, Inc. v. United States, 195 F.3d 1367 (Fed. Cir. 1999)

(“Samsung IV”).

Customs final argument against SCUSA’s interpretation of §

158.12 is that Congress intended to cover instances of partially

defective goods, in which the defect was not discovered until

later, in 19 U.S.C. § 1313(c). Section 1313(c) gives refunds of

duties as drawback for latent manufacturing defects when the

goods are destroyed or re-exported. Customs is mistaken that §

1313(c) was meant to cover the situation in the current case.

Section 1313(c) does not apply when duty refunds are claimed for

defective goods and the goods are not destroyed or re-exported.

The plain language of § 1313(c) does not include under its

purview all instances of defects discovered after importation,

and thus does not preclude § 158.12 from applying in the present

case. Therefore, § 158.12 applies to defects existing at the

time of importation, whether or not the defects were discovered

by the port director at the time of importation.

(2) SCUSA has shown that material issues of fact exist in
its claim for an allowance under 19 C.F.R. § 158.12
Court No. 00-00041 Page 22
Customs requires the protestant to establish the elements of

19 C.F.R. § 158.12 by a preponderance of the evidence. Fabil

Mfg. Co. v. United States, 237 F.3d 1335, 1340-41 (Fed. Cir.

2001). In Samsung III, the court set forth three requirements

for an importer to successfully claim an allowance under 19

C.F.R. § 158.12. First, the importer must show that it

contracted for “defect-free” merchandise. Samsung III, 23 CIT at

4-5, 35 F. Supp. 2d at 945. Second, the importer must be able to

link the defective merchandise to specific entries. Samsung III,

23 CIT at 6, 35 F. Supp. 2d at 945-46 (citing Samsung II, 106

F.3d at 379, n.4). Third, the importer must prove the amount of

the allowance value for each entry. Id.

Regarding the first requirement, SCUSA has easily shown that

it contracted for “defect-free” merchandise. Saab Auto, the

manufacturer, provided service agreements for defects in the

merchandise. See Samsung II, 106 F.3d at 379 (agreements between

manufacturer and importer that some merchandise will be defective

merely acknowledges the commercial reality that some goods will

be defective, and does not mean that the importer contracted for

defective merchandise). SCUSA also warranted to its customers

that the goods were free of defects. See id. (evidence that

importer warranted to its customers that the goods were defect-

free demonstrated that importer ordered defect-free merchandise).

And finally, SCUSA and Saab Auto have a close corporate
Court No. 00-00041 Page 23
relationship, implying that Saab Auto would not sell SCUSA

defective merchandise. See id. at 379 (the close corporate

relationship between manufacturer and importer implies that the

importer would not provide defective equipment to its consumers).

SCUSA has shown there are material issues of fact regarding

the second factor. Samsung III required the importer to

establish by a preponderance of the evidence which entries had

defects at the time of importation. 23 CIT at 7-9, 35 F. Supp.

2d at 946-47. The importer in Samsung III did not provide

sufficient evidence, offering only the consumer warranties and

internal documents showing that claims for defects not existing

at the time of importation were rejected. 23 CIT at 7-8, 35 F.

Supp. 2d at 947-48. SCUSA provides the evidence the Court in

Samsung III sought: descriptions of repairs to each vehicle, and

connects each vehicle repaired to a specific entry through the

VINs. See Samsung III, 23 CIT at 8, 35 F. Supp. 2d at 947 (“a

claimant should provide specific descriptions of the damage or

defect alleged and, in some manner, relate that defective

merchandise to a particular entry”). What remains for trial is

to develop the factual record to “independently confirm the

validity” of the repair records in order to establish that the

defects did indeed exist at the time of importation. Id. SCUSA

will have the opportunity at trial to provide expert testimony

that the described defects existed at the time of importation, or
Court No. 00-00041 Page 24
show through the defect descriptions that “the damage is

recognizable as a true manufacturing defect.” Id., see E.I.

Dupont de Nemours and Co. v. United States, 24 CIT 1301, 1302-04,

123 F. Supp. 2d 637, 639-41 (2000) (pursuant to 28 U.S.C. §

1581(a), the importer is permitted to present new evidence to

develop the Court’s record).

The third and final requirement for a successful claim under

19 C.F.R. § 158.12 is a showing by a preponderance of the

evidence of the amount of the allowances for each entry of the

defective vehicles. Samsung III, 23 CIT 9-11, 35 F. Supp. 2d at

948-50. SCUSA has detailed repair records that indicate the

costs for each repair. Through the VINs, SCUSA can tie the

repair costs to each entry. Trial is necessary to independently

verify the amount of the allowances. Therefore, SCUSA has

created a material issue of fact regarding the amount of the

allowances, which will be resolved at trial.

IV. CONCLUSION

The Court does not have jurisdiction over several entries

because the protests were untimely filed. Additionally, the

Court lacks jurisdiction over claims for vehicle repairs that

occurred after the vehicles’ respective protest dates. However,

the Court denies SCUSA’s motion for summary judgment and denies

Customs’ cross-motion for summary judgment. Factual questions

remain regarding whether the defects existed at the time of
Court No. 00-00041 Page 25
importation, and the amount of allowances tied to those defects.

See Samsung II at 380, n.4 (“Samsung thus bears the burden of

proving, for instance, that the costs to repair defects under

consumer warranties were incurred to repair defects in existence

at importation, and not, for instance, those caused by its own

mishandling or by consumer misuse of the equipment.”). The

factual record to be developed at trial will include any new,

relevant evidence produced by SCUSA to meet the burden of proof

on its 19 C.F.R. § 158.12 claim.

Senior Judge Richard W. Goldberg

Date: July 14, 2003
New York, New York