Slip Op. 99-100
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
___________________________________
:
SEA-LAND SERVICE, INC.; :
AMERICAN PRESIDENT LINES, LTD., :
:
Plaintiffs, :
:
v. : Consol. Court No.
: 96-02-00398
UNITED STATES, :
:
Defendant. :
___________________________________:
Plaintiffs, Sea-Land Service, Inc. (“Sea-Land”) and American
President Lines, Ltd. (“APL”), move, pursuant to USCIT R. 56, for
summary judgment on the grounds that the undisputed facts show
that, as a matter of law, the United States Customs Service
(“Customs”) misapplied the decision of Texaco Marine Servs., Inc.
v. United States, 44 F.3d 1539 (Fed Cir. 1994), in assessing duties
under 19 U.S.C. § 1466(a) (1994) on plaintiffs’ entries of repairs
completed on their United States-flagged vessels while abroad.
Specifically, plaintiffs claim that Customs: (1) erred in finding
that plaintiffs were per se liable for duties on vessel repair
expenses under 19 U.S.C. § 1466(a) without performing Texaco’s
mandated case-by-case analysis of each expense to determine if such
expense would not have been incurred “but for” the dutiable repair
work; (2) improperly applied dicta in Texaco concerning certain
vessel repair expenses to similar expenses at issue in this case;
(3) failed to properly apply an alleged second prong of Texaco’s
“but for” test by not providing notice in the Federal Register as
required under 19 U.S.C. § 1315(d) (1994) when Customs issued
rulings changing various established and uniform practices (“EUPs”)
that previously treated certain vessel repair expenses at issue in
this case as nondutiable; and (4) violated 19 U.S.C. § 1625(c)
(1994) by issuing protest review decisions modifying or revoking
prior Customs interpretive rulings or decisions without giving
interested parties notice and opportunity to comment as required
under the statute. Plaintiffs also argue that Customs
inappropriately applied a pro rata duty assessment formula to
certain vessel repair expenses that is inconsistent with Texaco and
19 U.S.C. § 1466(a). However, since such expenses were not raised
in this case, they request that the proration issue be dismissed or
severed from this action to allow them to litigate the matter in
related actions which more accurately raise the issue. Plaintiffs
Consol. Court No. 96-02-00398 Page 2
also request that the Court hold the vessel repair entries as
nondutiable and order Customs to reliquidate the protested entries
and refund all excess duties plus interest as provided by law.
Defendant opposes plaintiffs’ motion and cross-moves, pursuant
to USCIT R. 56, for summary judgment, claiming that the entries
were properly liquidated as dutiable pursuant to 19 U.S.C. §
1466(a). In particular, defendant asserts that: (1) Customs
conducted a case-by-case, rather than per se, “but for” analysis
for each vessel repair expense at issue; (2) Customs properly
applied the “but for” test, rather than dicta, as enunciated by
Texaco to such expenses; (3) Texaco did not establish a second
prong test requiring Customs to find that no EUPs exist under 19
U.S.C. § 1315(d) before it can impose duties on vessel repair-
related expenses; (4) the provisions of 19 U.S.C. § 1625(c) are
inapplicable in this case; and (5) this Court lacks jurisdiction to
address plaintiffs’ proration matter and, therefore, summary
judgment is improper on this issue.
Held: Plaintiffs’ motion for summary judgment is denied and
defendant’s cross-motion is granted. This action is dismissed.
[Plaintiffs’ summary judgment motion denied; defendant’s cross-
motion granted. Case dismissed.]
Dated: September 23, 1999
Arter & Hadden LLP (Myles J. Ambrose and Evelyn M. Suarez); of
counsel: Robert S. Zuckerman, for plaintiff Sea-Land Service, Inc.
Garvey, Schubert & Barer (E. Charles Routh and Carol L.
Saboda) for plaintiff American President Lines, Ltd.
David W. Odgen, Acting Assistant Attorney General; Joseph I.
Liebman, Attorney-in-Charge, International Trade Field Office,
Commercial Litigation Branch, Civil Division, United States
Department of Justice (Barbara S. Williams); of counsel: Karen P.
Binder, Assistant Chief Counsel, International Trade Litigation,
United States Customs Service, for defendant.
Consol. Court No. 96-02-00398 Page 3
Collier, Shannon, Rill & Scott, PLLC (Lauren R. Howard) for
Shipbuilders Council of America, Inc., amicus curiae in support of
defendant’s cross-motion for summary judgment.
OPINION
TSOUCALAS, Senior Judge: This matter is before the Court on
cross-motions for summary judgment pursuant to USCIT R. 56. In
their motion for summary judgment, plaintiffs, Sea-Land Service,
Inc. (“Sea-Land”) and American President Lines, Ltd. (“APL”), seek
to recover duties assessed by the United States Customs Service
(“Customs”) under 19 U.S.C. § 1466(a) (1994) on plaintiffs’ entries
of repairs completed on their United States flagged-vessels while
abroad. Plaintiffs request that the Court hold the vessel repair
entries as nondutiable and order Customs to reliquidate the
protested entries and refund all excess duties plus interest as
provided by law. Defendant counters that the entries were properly
liquidated as dutiable pursuant to 19 U.S.C. § 1466(a). For the
reasons set forth in the opinion which follows, the Court grants
defendant's cross-motion for summary judgment and denies
plaintiffs’ motion. The action is dismissed.
Consol. Court No. 96-02-00398 Page 4
BACKGROUND
I. Texaco’s “But For” Test
This case involves Customs’ application of Texaco Marine
Servs., Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994). In
Texaco, the United States Court of Appeals for the Federal Circuit
(“CAFC”) affirmed this Court’s holding that post-repair cleaning
and protective covering expenses related to repairs performed on a
United States-flagged vessel by foreign labor while abroad, were
properly dutiable as “expenses of repairs” pursuant to the vessel
repair statute, 19 U.S.C. § 1466(a),1 because the expenses were an
integral part of the repair process and would not have been
necessary “but for” the dutiable repairs. See Texaco, 44 F.3d at
1543-50.
1
Title 19, United States Code, § 1466(a) provides in
pertinent part:
(a) Vessels subject to duty; penalties
The equipments, or any part thereof, including
boats, purchased for, or the repair parts or materials to
be used, or the expenses of repairs made in a foreign
country upon a vessel documented under the laws of the
United States to engage in the foreign or coasting trade,
or a vessel intended to be employed in such trade, shall,
on the first arrival of such vessel in any port of the
United States, be liable to entry and the payment of an
ad valorem duty of 50 per centum on the cost thereof in
such foreign country.
19 U.S.C. § 1466(a) (1994).
Consol. Court No. 96-02-00398 Page 5
The CAFC in Texaco also provided clear guidance for
interpreting the phrase “expenses of repairs” in 19 U.S.C. §
1466(a). See id. at 1543-45. The CAFC found that “the language
‘expenses of repairs’ is broad and unqualified.” Id. at 1544. In
particular, the CAFC interpreted “‘expenses of repairs’ as covering
all expenses (not specifically excepted in the statute) which, but
for dutiable repair work, would not have been incurred.
Conversely, ‘expenses of repairs’ does not cover expenses that
would have been incurred even without the occurrence of dutiable
repair work.” Id. To interpret the statute any more restrictively
would, according to the CAFC, thwart Congress’ intent to make the
statute’s application broad in scope. See id. Indeed, the CAFC
noted that such a “but for” interpretation effectuates the
statute’s clear purpose of protecting United States shipbuilding
and repair industry. See id. at 1544-45.
The CAFC further found that to the extent that non-binding
judicial authority relied upon by plaintiffs in Texaco was
inconsistent with the court’s “but for” interpretation, it was “not
persuaded . . . to interpret ‘expenses of repairs’ any more
restrictively than the plain language of the statute warrants.”
Id. at 1546. Specifically, the CAFC addressed three cases: (1)
American Viking Corp. v. United States, 37 Cust. Ct. 237, 245, C.D.
1830, 150 F. Supp. 746, 752 (1956) (holding that expense of
Consol. Court No. 96-02-00398 Page 6
providing lighting needed to perform a dutiable repair was not
dutiable as an expense of the repair); (2) International Navigation
Co. v. United States, 38 Cust. Ct. 5, 12, C.D. 1836, 148 F. Supp.
448, 455 (1957) (holding that expenses to transport a foreign
repair crew to and from an anchored vessel being repaired, which
expenses the court specifically found were necessary to perform the
work, were not dutiable as expenses of repairs); and (3) Mount
Washington Tanker Co. v. United States, 1 CIT 32, 42, 505 F. Supp.
209, 216 (1980) (holding that expenses for compensating foreign
repair crew members for their time spent traveling between their
home country and a vessel anchored at sea off another foreign port
were not dutiable as an expense of the dutiable repairs performed
by the repair crew). See id. at 1546-47. The CAFC determined that
the vessel repair-related expenses at issue in these three cases
would also have been viewed as coming within 19 U.S.C. § 1466(a) if
a “but for” approach was applied. See id. The CAFC, therefore,
concluded that these cases were “incorrectly decided.” Id. at 1547.
Finally, the CAFC rejected plaintiffs’ claim in Texaco that
Customs’ assessment of duties on the cleaning and protective
covering expenses was improper because it was based on an
interpretation of “expenses of repairs” that was a change in
established and uniform practice (“EUP”), as provided by a Treasury
decision, and that Customs made the change without giving notice in
Consol. Court No. 96-02-00398 Page 7
the Federal Register as required under 19 U.S.C. § 1315(d) (1994).
See id. at 1547-48. In particular, plaintiffs asserted that
Treasury Decision (“T.D.”) 39443, 43 Treas. Dec. 99 (1923),
established an interpretation for “expenses of repairs” which was
inconsistent with Customs’ assessment of duties in the Texaco case.
See Texaco, 44 F.3d at 1547. Plaintiffs claimed that T.D. 39443
interpreted “expenses of repairs” under 19 U.S.C. § 1466(a) “as
covering only those expenses incurred for work directly involved in
the actual making of repairs” and that, therefore, under this
standard, cleaning and protective covering expenses were “not
‘expenses of repairs’ within the meaning of the statute.” Id. The
CAFC disagreed that T.D. 39443 established a narrow standard for
“expenses of repairs” and, in fact, the court concluded that it
provided nothing with respect to the interpretation of “expenses of
repairs.” See id. at 1548.
After finding this Court properly adopted a “but for” standard
for “expenses of repairs,” the CAFC concluded that the expenses at
issue in Texaco were properly assessed with the vessel repair duty
under 19 U.S.C. § 1466(a).
Consol. Court No. 96-02-00398 Page 8
II. Customs’ Application of Texaco
A. HQ Memorandum 113308
Recognizing that the CAFC’s decision in Texaco was not only
dispositive for the expenses at issue in the case, but also
instructive as to Customs’ administration of the vessel repair
statute with respect to the interpretation of the term “expenses of
repairs” contained therein, the Assistant Commissioner for Customs
Office of Regulations and Rulings (“OR&R”) issued Headquarters
(“HQ”) memorandum 113308 to Customs Regional Director, Commercial
Operations Division, New Orleans, dated January 18, 1995, and
subsequently published it in the Customs Bulletin and Decisions.
See 29 Cust. B. & Dec. 59 (Feb. 8, 1995). In that memorandum,
copies of which were disseminated to two other field offices
charged with the liquidation of vessel repair entries, Customs
stated that pursuant to Texaco, foreign repair expenses previously
considered nondutiable would possibly “constitute dutiable
‘expenses of repairs’ under the ‘but for’ test.” Id. at 60. The
memorandum instructed that any foreign repair costs contained in
the vessel repair entries not finally liquidated as of the date of
the CAFC’s Texaco decision (that is, Dec. 29, 1994), should be
liquidated as dutiable “expenses of repairs” provided they pass
Texaco’s “but for” test. See id.
Consol. Court No. 96-02-00398 Page 9
B. HQ Memorandum 113350
In response to the HQ memorandum 113308, plaintiffs and other
American vessel owners/operators requested a meeting with Customs
to discuss Customs’ implementation of Texaco’s “but for” test. See
Def.’s Mem. Supp. Cross-mot. Summ. J. at Ex. 3. On February 22,
1995, representatives of Sea-Land and APL met with the Assistant
Commissioner of OR&R and other Customs staff and urged Customs to
rescind HQ memorandum 113308, but Customs refused to retract it.
See id.
Nevertheless, upon further review of the matter, the Assistant
Commissioner of OR&R again issued a HQ memorandum, denominated
113350, to the Regional Director, Commercial Operations Division,
New Orleans, dated March 3, 1995, and subsequently published in the
Customs Bulletin and Decisions, which clarified the effective date
of HQ memorandum 113308. See 29 Cust. B. & Dec. 24 (Apr. 5,
1995).2 The HQ memorandum 113350 provided that instead of
assessing duties on vessel repair entries unliquidated at the time
of CAFC’s Texaco decision, Customs would limit its assessment to
entries filed on or after the date of that decision. See id. at
25. With respect to the vessel repair entries filed prior to the
Texaco decision, Customs would retroactively apply Texaco’s “but
2
Customs also published the text of the Texaco decision in
the Customs Bulletin and Decisions. See 29 Cust. B. & Dec. 19
(Mar. 8, 1995).
Consol. Court No. 96-02-00398 Page 10
for” test only to the post-repair cleaning and protective covering
expenses that were directly decided by the CAFC in that case. See
id.
C. Assessment of Duties
From January 1995 through March 1996, Sea-Land and APL
declared and entered with Customs the vessel repair expenses that
are at issue here as required under 19 C.F.R. § 4.14(b) (1995 &
1996).3 The vessel repair entries involved expenses for work
performed abroad on several United States-flagged vessels by
foreign labor. The entries included expenses such as
transportation, travel, equipment rental, meal, administrative,
insurance and tax costs. None of the entries concerned dry-docking
expenses. Customs examined every entry to determine whether each
expense was incurred “but for” dutiable repairs. For those
expenses which Customs found satisfied the “but for” test, Customs
liquidated the entries and assessed duties pursuant to 19 U.S.C. §
1466(a); where Customs found that the expenses did not pass the
“but for” test, no duties were imposed.
3
A vessel owner (or master) is required, upon first arrival
of the vessel in the United States, to declare to Customs all
repairs made outside of the United States, regardless of the
dutiable status of the expenses for repairs. See 19 C.F.R. §
4.14(b)(1) (1995 & 1996). The vessel owner (or master) also must
file entry of repairs with Customs. See id. § 4.14(b)(2).
Consol. Court No. 96-02-00398 Page 11
III. Procedural History
After all the liquidated duties on the applicable vessel
repair entries were paid as required by 28 U.S.C. § 2637(a) (1994),
Sea-Land and APL filed administrative protests for the
liquidations. In due course, Customs denied the protests,
whereupon Sea-Land and APL subsequently filed separate actions
before this Court. These actions were consolidated on May 20,
1997. The consolidated action was designated as a test case for
all further entries pursuant to USCIT R. 84(c). On July 7, 1998,
Sea-Land and APL jointly moved for summary judgment to recover any
and all excess duties together with interest assessed by Customs on
the protested vessel repair entries under 19 U.S.C. § 1466(a).
Defendant cross-moved for summary judgment on December 7, 1998,
maintaining that Customs properly assessed such duties. On
December 17, 1998, this Court allowed Shipbuilders Council of
America, Inc., a national nonprofit trade association representing
United States shipyards engaged in the construction and repair of
ocean-going vessels, to participate as amicus curiae in support of
the defendant’s position. Oral argument was heard on June 29,
1999.
Consol. Court No. 96-02-00398 Page 12
DISCUSSION
This Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1581(a) (1994).
I. Standard of Review
“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. The court may not
resolve or try factual issues on a motion for summary judgment.”
Phone-Mate, Inc. v. United States, 12 CIT 575, 577, 690 F. Supp.
1048, 1050 (1988) (citations omitted). In ruling on cross-motions
for summary judgment, if no genuine issue of material fact exists,
the court must determine whether either party “is entitled to a
judgment as a matter of law.” USCIT R. 56(d); see Skaraborg Invest
USA, Inc. v. United States, 22 CIT __, __, 9 F. Supp. 2d 706, 708
(1998); Phone-Mate, 12 CIT at 577, 690 F. Supp. at 1050. This is
the same standard set forth in Fed. R. Civ. P. 56(c). See Texaco,
44 F.3d at 1543.
In this case, the movants stipulated to the following facts:
(1) Customs issued certain HQ rulings, as enumerated in the
pleadings, that have not been revoked, rescinded, amended or noted
as a change of practice or position pursuant to 19 U.S.C. § 1625(a)
and 19 C.F.R. § 177.10(c); (2) such HQ rulings relate to the
Consol. Court No. 96-02-00398 Page 13
dutiability of one or more items of the plaintiffs’ protests; (3)
none of the protests relates to duty assessed under 19 U.S.C. §
1466(a) for cleaning or covering expenses; and (4) some of the
protests relate to duty assessed to certain items on a pro rata
basis apportioned by Customs to reflect what Customs alleges are
the dutiable and nondutiable foreign costs of an entry. See Stip.
Facts at ¶ 1-5 (Aug. 21, 1997). The movants agree, and the Court
finds, that there are no genuine material issues of fact in dispute
and this action may be decided on motion for summary judgment.
II. Customs’ Alleged Per Se Application
of Texaco’s “But For” Test
Plaintiffs argue that Customs violated the doctrine of stare
decisis because, contrary to Texaco, it had taken the position that
plaintiffs were per se liable for the 50-percent ad valorem duty on
various vessel repair expenses under 19 U.S.C. § 1466(a) without
performing a case-by-case “but for” analysis for each expense. See
Pls.’ Mem. Supp. Mot. Summ. J. at 7. Specifically, plaintiffs note
that Texaco held that only post-repair cleaning and protective
covering expenses are dutiable as “expenses of repairs” under 19
U.S.C. § 1466(a). See id. at 10. Since none of the protests in
this case involved cleaning or covering expenses, see Stip. Facts
at ¶ 4, plaintiffs assert that Texaco requires Customs to apply a
“two-prong” test on a case-by-case, rather than a per se, basis to
Consol. Court No. 96-02-00398 Page 14
determine whether a particular expense is dutiable as an expense of
repair, see Pls.’ Mem. Supp. Mot. Summ. J. at 10-15.
Defendant counters that Customs individually applied the “but
for” test to each and every vessel repair-related expense at issue,
rather than on a per se basis and correctly determined that each of
plaintiffs’ dutiable expenses were incurred “but for” dutiable
vessel repairs. See Def.’s Mem. Supp. Cross-mot. Summ. J. at 9-18.
The Court agrees with the defendant that Customs properly
conducted a case-by-case “but for” analysis for each expense at
issue. Customs’ HQ memoranda 113308 and 113350 lend support to
such a conclusion. Rather than directing its field offices to
automatically assess the 50-percent ad valorem duty on every vessel
repair entry, HQ memorandum 113308 instructed that “any . . . costs
contained in vessel repair entries . . . should be liquidated as
dutiable as ‘expenses of repairs’ provided they pass the ‘but for’
test.” 29 Cust. B. & Dec. 59, 60 (Feb. 8, 1995) (emphasis in
original). Likewise, HQ memorandum 113350 noted that “a myriad of
foreign repair expenses previously accorded duty-free treatment
would, under certain circumstances, no longer receive such
treatment.” 29 Cust. B. & Dec. 24 (Apr. 5, 1995). Indeed, a
review of the entries in these consolidated actions establish that
Customs not only instructed its field offices to perform a case-by-
case “but for” analysis of each expense, but Customs also actually
Consol. Court No. 96-02-00398 Page 15
performed this analysis. Various entries show that Customs found
some expenses were dutiable, while other expenses, even within the
same entry, were determined to be nondutiable.
III. Customs’ Alleged Application of Texaco Dicta
Plaintiffs assert that the CAFC’s statements in Texaco
concerning lighting, transportation and travel expenses were dicta
without any stare decisis effect because such expenses were not
directly before the CAFC in that case. See Pls.’ Mem. Supp. Mot.
Summ. J. at 10-11. In particular, plaintiffs note that these
expenses were mentioned in previous cases (that is, American Viking
(lighting expenses), International Navigation (repair crew
transportation expenses) and Mount Washington (travel time
compensation expenses)) used by the CAFC to further demonstrate the
validity of the “but for” test. See id. at 11. Plaintiffs note
that Customs’ position in this case that Texaco constitutes stare
decisis for resolving expenses, which do not concern clean up or
protective covering expenses directly involved in Texaco, is
untenable because it goes beyond well-established rules which
mandate applying the stare decisis doctrine only to those cases
with similar fact patterns. See id. Plaintiffs, therefore, argue
that Customs improperly acted by applying such dicta to similar
expenses at issue in this case. See id.
Consol. Court No. 96-02-00398 Page 16
Defendant argues that the CAFC’s determination in Texaco
finding that lighting, transportation and travel expenses are
dutiable is stare decisis, rather than dicta, because the
determination was essential to the court’s finding that the phrase
“expenses of repairs” under 19 U.S.C. § 1466(a) implicates the “but
for” standard. See Def.’s Mem. Supp. Cross-mot. Summ. J. at 17.
In the alternative, defendant asserts that Texaco’s “but for” test
is still binding precedent here and must be applied to all expenses
to determine those that are dutiable. See id. at 17-18. In
particular, defendant claims that the CAFC’s analysis in Texaco of
the vessel repair statute so as to require the application of the
“but for” test to each expense was an issue of law and, therefore,
is binding law in this case. See id.
The Court rejects plaintiffs’ argument that Customs acted
improperly by applying alleged dicta from Texaco. Even if the
CAFC’s determinations in Texaco on such expenses “might”
technically qualify as dicta and, therefore, might not be binding
in a subsequent proceeding such as this one, see generally King v.
Erickson, 89 F.3d 1575, 1582 (Fed. Cir. 1996) (defining dicta as
“[w]ords of an opinion entirely unnecessary for the decision of the
case”) (citations omitted), rev’d sub nom. on other grounds, 522
U.S. 262 (1998), the Court nevertheless finds that Customs acted
properly. Under principles of stare decisis, Customs was still
Consol. Court No. 96-02-00398 Page 17
bound to apply Texaco’s mandate of assessing the vessel repair duty
on any and all repair expenses in this case meeting the “but for”
test, including, but not limited to, lighting, transportation and
travel expenses.
IV. Texaco’s Alleged Two-Prong Test
A. Applicability of 19 U.S.C. § 1315(d)
Plaintiffs maintain that Texaco established a “two-prong” test
for determining dutiability of vessel repair expenses under 19
U.S.C. § 1466(a). See Pls.’ Mem. Supp. Mot. Summ. J. at 10-15.
Under the first prong, plaintiffs assert that Customs must
determine whether a particular expense met the “but for” standard,
that is, whether the expense would not have been necessary “but
for” dutiable vessel repairs. See id. at 12. Even if the expense
is found to be dutiable under this standard, plaintiffs contend
that the second prong requires that Customs also find that
assessing duties on the particular expense at issue does not run
counter to an EUP of nondutiability of that expense. See id. at
14. If the expense is contrary to such an EUP, plaintiffs assert
that Customs must first comply, under Texaco, with the notice
requirement of 19 U.S.C. § 1315(d), and now the notice-and-comment
requirements of 19 U.S.C. § 1625(c) (1994), before ruling that the
expense is dutiable. See id. Plaintiffs assert that Customs
failed: (1) to properly apply Texaco’s two-prong test; and (2) to
Consol. Court No. 96-02-00398 Page 18
comply with the statutory notice-and-comment requirements before
assessing duties to expenses at issue in this case. See id. at 11-
15.
With respect to the second prong, plaintiffs first suggest
that Customs’ protest review decisions, not the CAFC’s Texaco
decision, changed various EUPs that found certain vessel repair
expenses at issue in this case as nondutiable. See Pls.’ Reply
Opp’n to Def.’s Cross-mot. Summ. J. at 6-11. These protest review
decisions, according to plaintiffs, triggered the notice
requirement of § 1315(d),4 which Customs neglected to comply with
here. See id. Plaintiffs claim that the change in EUPs were
acknowledged by Customs in HQ memorandum 113308 for it provided a
“finding” of various EUPs by the Secretary of the Treasury under 19
4
Title 19, United States Code, § 1315(d) provides in
pertinent part:
(d) Effective date of administrative rulings resulting
in higher rates
No administrative ruling resulting in the imposition
of a higher rate of duty or charge than the Secretary of
the Treasury shall find to have been applicable to
imported merchandise under an established and uniform
practice shall be effective with respect to articles
entered for consumption or withdrawn from warehouse for
consumption prior to the expiration of thirty days after
the date of publication in the Federal Register of notice
of such ruling.
19 U.S.C. § 1315(d) (1994).
Consol. Court No. 96-02-00398 Page 19
U.S.C. § 1315(d).5 See id. at 6-7. Even absent such a formal
finding, plaintiffs claim that de facto EUPs existed because (1)
hundreds of HQ rulings, which plaintiffs identified in their
complaints as being revoked by Customs and to which Customs
stipulated in issuing such rulings, clearly established a series of
EUPs; and (2) the language of HQ memoranda 113308 and 113350
clearly provided that Customs had EUPs of not considering the
expenses at issue as dutiable. See id. at 3-10.
Plaintiffs further argue that even if this Court were to find
that they had not carried their burden of proof of showing de facto
EUPs at this stage of the proceedings, this does not mean that
Customs is entitled to summary judgment; rather, they contend this
simply raises an issue of proof which would have to be resolved at
a trial. See id. at 9. Plaintiffs also maintain that the alleged
protest review decisions applied the “but for” test to determine
whether a particular expense was a dutiable expense of repair
5
HQ memorandum 113308 stated in pertinent part:
It is readily apparent that this case has wide-ranging
ramifications with respect to Customs liquidation of
vessel repair entries. For example, as you well know we
currently do not consider the following foreign costs
dutiable under the vessel repair statute: air, crane,
drydocking charges, electricity, travel/transportation,
launch use, lodging, security and staging. . . . [T]his
list of costs is not all inclusive.
29 Cust. B. & Dec. 59, 59-60 (Feb. 8, 1995).
Consol. Court No. 96-02-00398 Page 20
without taking the second step under Texaco of analyzing whether
EUPs existed for the various expenses. See id. at 9-10.
Defendant argues that Texaco did not establish a second prong
test requiring Customs to find that no EUP exists under 19 U.S.C.
§ 1315(d) before it can impose duties on vessel repair-related
expenses. See Def.’s Mem. Supp. Cross-mot. Summ. J. at 19.
Moreover, defendant asserts that 19 U.S.C. § 1315(d)’s requisite
notice in the Federal Register was not violated here. See id. at
18. Specifically, defendant claims that there was no
“administrative ruling” resulting in the imposition of a higher
rate of duty on “imported merchandise”6 under an EUP because HQ
memoranda 113308 and 113350, Customs’ protest denials or any of
plaintiffs’ unnamed and unidentified protest review decisions did
not result in the assessment of higher duties. See Def.’s Mem.
Reply to Pls.’ Opp’n to Def.’s Cross-mot. Summ. J. at 7-8. Rather,
defendant contends that the CAFC’s decision in Texaco mandated the
change. See id. at 8.
In the alternative, defendant argues that even if one assumes
that an “administrative ruling” resulted in the assessment of
6
With respect to “imported merchandise,” the CAFC clarified
that “19 U.S.C. § 1498(a)(10) . . . indicates an intention by
Congress that expenses within the vessel repair statute shall be
regarded as merchandise imported into the United States.” Texaco,
44 F.3d at 1547 (citations omitted).
Consol. Court No. 96-02-00398 Page 21
higher duties on plaintiffs’ entries, 19 U.S.C. § 1315(d) is still
inapplicable because plaintiffs did not meet their burden of
proving either (1) the Secretary of the Treasury made a formal
“finding” of an EUP as required by the statute; or (2) if no
finding was made by the Secretary, that a de facto EUP existed.
See Def.’s Mem. Supp. Cross-mot. Summ. J. at 22-28. Even if
plaintiffs show that a de facto EUP existed, defendant claims that
the plaintiffs had actual notice of the change in practice before
the entries were made in this action because (1) plaintiffs were
members of The American Institute for Merchant Shipping, who
participated as amicus curiae in Texaco; (2) Customs had issued and
published HQ memoranda 113308 and 113350; and (3) plaintiffs met
with Customs on February 22, 1995. See id. at 28-32.
1. Texaco’s One-Prong “But For” Test
The Court rejects plaintiffs argument that Texaco contained a
second prong requiring Customs to affirmatively prove no EUP exists
under 19 U.S.C. § 1315(d) before it can impose duties on vessel
repair-related expenses found dutiable under the “but for” test.7
Although plaintiffs note that in Texaco the CAFC stated “we hold
that the imposition of the fifty percent ad valorem duty upon the
7
Plaintiffs do not challenge Customs’ use of the “but for”
test to determine whether a particular entry of repair is dutiable
as an expense of repair under 19 U.S.C. § 1466(a). See Pls.’ Reply
Opp’n to Def.’s Cross-mot. Summ. J. at 3.
Consol. Court No. 96-02-00398 Page 22
expenses at issue in this case was consistent with the vessel
repair statute and not contrary to any established and uniform
practice of Customs,” this Court finds that the CAFC’s statement
does not establish a two-prong test for determining the dutiability
of a vessel repair expense under 19 U.S.C. § 1466(a). Texaco, 44
F.3d at 1543.
In Texaco, the CAFC agreed with this Court’s “but for”
interpretation of “expenses of repairs” under 19 U.S.C. § 1466(a)
that duties can be assessed against vessel repair expenses incurred
“but for” dutiable repair work. See id. at 1543-45. Only after
reaching this finding, the CAFC considered and rejected the
plaintiffs’ claim in Texaco that Customs should not have assessed
duties on the expenses at issue in the case because Customs’
assessment changed an EUP without providing the requisite notice in
the Federal Register under 19 U.S.C. § 1315(d). See id. at 1547-
48. In responding to plaintiffs’ argument, the CAFC affirmed that
an EUP claim is available to a party in a case involving the
imposition of a higher rate of duty to imported merchandise,
including duties on vessel repair expenses. See id.
Nevertheless, the CAFC in Texaco did not change the fact that
the burden rests upon the plaintiff to prove that an EUP exists
under 19 U.S.C. § 1315(d), a burden the CAFC determined the
Consol. Court No. 96-02-00398 Page 23
plaintiffs did not meet in the case.8 See, e.g., Siemens America,
Inc. v. United States, 692 F.2d 1382, 1384 (Fed. Cir. 1982) (noting
that, even if a “finding” of an EUP by the Secretary of the
Treasury is not a prerequisite to application of 19 U.S.C. §
1315(d), the importers still shoulder “their burden of proving that
there existed an established and uniform practice”). In other
words, the CAFC did not create a second prong requiring Customs to
affirmatively prove that an EUP does not exist before it can impose
duties on expenses that meet the “but for” test; rather, the CAFC
merely addressed the plaintiffs’ failure to satisfy their burden of
demonstrating an EUP under 19 U.S.C. § 1315(d). The Court,
therefore, finds that Texaco only established a one-prong “but for”
test for determining whether a vessel repair expense under 19
U.S.C. § 1466(a) is dutiable.
2. Lack of “Administrative Ruling”
Under 19 U.S.C. § 1315(d)
The Court further finds that the thirty-day notice in the
Federal Register under 19 U.S.C. § 1315(d) is inapplicable in this
case because plaintiffs failed to demonstrate that the elements of
the statute were violated. To trigger this procedural requirement,
there must have been (1) an administrative ruling that increases
8
Indeed, plaintiffs appear to acknowledge this burden,
asserting in their reply brief that they “met their burden to
establish the existence of EUP’s.” Pls.’ Reply Opp’n to Def.’s
Cross-mot. Summ. J. at 6.
Consol. Court No. 96-02-00398 Page 24
the rate of duty on the imported merchandise; and (2) the
merchandise is subject to an EUP of a lower duty rate. See 19
U.S.C. § 1315(d).
In this action, an “administrative ruling” did not result in
the imposition of a higher rate of duty. In other words, despite
plaintiffs’ contentions, the protest review decisions or protest
denials did not provide a new interpretation of the vessel repair
statute that resulted in the assessment of higher duties. Rather,
the CAFC’s decision in Texaco mandated the change that led to
higher duties.
As noted, the CAFC enunciated in Texaco that the “expenses of
repairs” language in 19 U.S.C. § 1466(a) covers expenses which were
incurred “but for” dutiable repairs. See Texaco, 44 F.3d at 1543-
45. The CAFC’s determination is a matter of law that must be
followed by this Court and Customs. See United States v. Ben
Felsenthal & Co., 16 Ct. Cust. Appl. 15, 17-18 (1928) (holding that
it is “well settled that where a court of competent jurisdiction
settles and judicially defines the common meaning of a term used in
a statute, such a determination and adjudication becomes [a] matter
of law” and will be adhered to until a legislative change in
statute necessitates a change in meaning). Where a judicial
decision mandates a change in an EUP, 19 U.S.C. § 1315(d) is
inapplicable. See Westergaard, Berg-Johnsen Co. v. United States,
Consol. Court No. 96-02-00398 Page 25
17 Cust. Ct. 1, 3, C.D. 1009 (1946) (noting that 19 U.S.C. §
1315(d) is limited to an administrative ruling changing an EUP of
a lower duty rate, but does not apply where the higher assessment
is due to a judicial decision). Moreover, the legislative history
of 19 U.S.C. § 1315(d) expressly removes judicial decisions from
the notice requirement of 19 U.S.C. § 1315(d). See id.
Accordingly, since Customs’ actions following Texaco, including the
issuance of HQ memoranda 113308 and 113350 implementing the “but
for” test and subsequent protest denials, were based on the agency
complying with a judicial mandate, the Court finds that 19 U.S.C.
§ 1315(d) does not apply in this case on this basis alone. The
Court, therefore, declines to address plaintiffs’ EUP arguments
under 19 U.S.C. § 1315(d).
B. Applicability of 19 U.S.C. § 1625(c)(1)
As part of their argument pertaining to their alleged second-
prong of Texaco’s “but for” test, plaintiffs also claim that
Customs violated 19 U.S.C. § 1625(c) by issuing numerous protest
review decisions that modified or revoked prior Customs
interpretive rulings or decisions without giving interested parties
notice and opportunity to comment beforehand as required under the
Consol. Court No. 96-02-00398 Page 26
statute.9 See Pls.’ Mem. Supp. Mot. Summ. J. at 15-18. In
particular, plaintiffs point out that these protest review
decisions (1) modified or revoked Customs HQ rulings or decisions
that had been in effect for years, in violation of 19 U.S.C. §
1625(c)(1); and (2) had the effect of modifying the nondutiable
treatment Customs previously accorded to various vessel repair
9
Title 19, United States Code, § 1625(c) provides in
pertinent part:
(c) Modification and revocation
A proposed interpretive ruling or decision which
would-–
(1) modify (other than to correct a clerical
error) or revoke a prior interpretive ruling
or decision which has been in effect for at
least 60 days; or
(2) have the effect of modifying the treatment
previously accorded by the Customs Service to
substantially identical transactions;
shall be published in the Customs Bulletin. The
Secretary shall give interested parties an opportunity
to submit, during not less than the 30-day period after
the date of such publication, comments on the correctness
of the proposed ruling or decision. After consideration
of any comments received, the Secretary shall publish a
final ruling or decision in the Customs Bulletin within
30 days after the closing of the comment period. The
final ruling or decision shall become effective 60 days
after the date of its publication.
19 U.S.C. § 1625(c) (1994). Section 1625, as amended by § 623 of
Title VI of the North American Free Trade Agreement Implementation
Act, Pub. L. No. 103-182, 107 Stat. 2057, 2186 (Dec. 8, 1993), was
not in effect at the time Customs considered the vessel repair
entries in Texaco and, therefore, it was not part of the case’s
holding.
Consol. Court No. 96-02-00398 Page 27
expense entries, in violation of 19 U.S.C. § 1625(c)(2). See id.
at 17. Moreover, even if Customs’ HQ memoranda 113308 and 113350
and the February 1995 meeting between Customs and plaintiffs can be
construed as giving notice and opportunity to comment, plaintiffs
assert that under American Bayridge Corp. v. United States, 22 CIT
__, 35 F. Supp. 2d 922 (1998), the notice-and-comment requirements
of 19 U.S.C. § 1625(c) are mandatory rather than discretionary and,
thus, Customs violated the statute by failing to comply with such
requirements. See Pls.’ Reply Opp’n to Def.’s Cross-mot. Summ. J.
at 12-14.
Defendant argues that the provisions of 19 U.S.C. § 1625(c)
are inapplicable here. See Def.’s Mem. Supp. Cross-mot. Summ. J.
at 32-39. In particular, defendant claims that the alleged
interpretive rulings or protest review decisions, which were
unnamed and unidentified by plaintiffs, did not “modify” prior
Customs rulings, decisions or treatment of vessel repair expenses;
rather, the CAFC’s mandate in Texaco did so, which Customs is bound
to follow. See Def.’s Mem. Reply to Pls.’ Opp’n to Def.’s Cross-
mot. Summ. J. at 16. Indeed, defendant notes that if the alleged
protest review decisions were considered to have modified prior
rulings or decisions, Customs could not follow Texaco without first
publishing notice and giving interested parties the opportunity to
comment on whether Texaco was correct--an irrelevant question since
Consol. Court No. 96-02-00398 Page 28
Customs has no option but to observe Texaco’s mandate. See id. at
16-17.
In addition, defendant asserts that plaintiffs did not meet
the specific requirements of 19 U.S.C. § 1625(c)(1) in that
plaintiffs failed to identify a single protest review decision that
explicitly “revoke[d] a prior interpretive ruling or decision which
has been in effect for at least 60 days.” Id. at 17 (quoting 19
U.S.C. § 1625(c)(1)). Similarly, defendant claims that plaintiffs
failed to identify any evidence demonstrating that the alleged
protest review decisions under 19 U.S.C. § 1625(c)(2) had the
effect of “modifying the treatment previously accorded by the
Customs Service to substantially identical transactions” or that
Customs ever issued such a “modifying” ruling. Id. at 18 (quoting
19 U.S.C. § 1625(c)(2)). Defendant also argues that the facts at
issue here are distinguishable from American Bayridge and,
therefore, plaintiffs erred in relying on the case. See id. at 19-
20.
The Court rejects plaintiffs’ contention that 19 U.S.C. §
1625(c) applies in this case. First, 19 U.S.C. § 1625(c) requires
the Secretary of the Treasury to publish a proposed interpretive
ruling or decision in the Customs Bulletin and to give interested
parties an opportunity to comment if such a ruling or decision
would: (1) modify or revoke a prior interpretative ruling or
Consol. Court No. 96-02-00398 Page 29
decision that had been in effect for at least 60 days; or (2) have
the effect of modifying Customs’ previous treatment of
substantially identical transactions. See 19 U.S.C. § 1625(c)(1),
(2). In this case, however, Customs did not issue a proposed
interpretive ruling or decision within the meaning of 19 U.S.C. §
1625(c). In other words, Customs did not, on its own motion,
undertake review of the dutiability of foreign repairs and propose
a new interpretation of customs law; rather, the CAFC’s decision in
Texaco established a new interpretation of law that Customs is
bound to follow. The Court, therefore, concludes the protest
review decisions alluded to by plaintiffs, as well as the HQ
memoranda 113308 and 113350 published in the Customs Bulletin, were
not proposed interpretive rulings or decisions; instead, such
decisions and memoranda merely implemented the judicial mandate of
Texaco.
Similarly, the Court finds that plaintiffs failed to show how
the protest review decisions and the HQ memoranda modified or
revoked prior interpretative rulings or decisions or modified the
treatment previously accorded to substantially identical
transactions. No prior interpretative rulings or decisions, for
instance, were expressly discussed in either HQ memoranda.
The Court also finds that plaintiffs’ insistence on a notice-
and-comment period under 19 U.S.C. § 1625(c) in the instant case
Consol. Court No. 96-02-00398 Page 30
would serve no purpose. Section 1625(c)’s stated goal is to allow
interested parties to comment on “the correctness of the proposed
ruling or decision.” 19 U.S.C. § 1625(c). Here, Customs did not
issue a proposed ruling or decision. Further, Customs did not
have any discretion with regard to the CAFC’s decision in Texaco
because Customs could not modify or reject the judicial decision.
The Court, therefore, finds that requiring comments on the
“correctness” of a judicial decision would be inappropriate.
As further support that 19 U.S.C. § 1625(c) excludes judicial
decisions, the Court finds guidance in subsection (d) of the
statute. Section 1625(d) addresses the circumstance in which
Customs needs to provide a comment period with regard to a court
decision. Specifically, subsection (d) provides that “[a] decision
that proposes to limit the application of a court decision shall be
published in the Customs Bulletin together with notice of
opportunity for public comment thereon prior to a final decision.”
19 U.S.C. § 1625(d). Subsection (d), therefore, makes clear that
Customs is only required to hold a comment period with regard to a
judicial opinion if Customs seeks to limit its applicability.
Where, as here, Customs plans to fully implement a judicial
mandate, no solicitation of public comment is necessary.
The Court also disagrees with plaintiffs’ assertion that
Customs violated 19 U.S.C. § 1625(c) under the holding of American
Consol. Court No. 96-02-00398 Page 31
Bayridge. While American Bayridge stands for the proposition that
Customs must honor the procedural requirements of 19 U.S.C. §
1625(c), the Court finds this case does not expand the scope of the
statute to encompass the case at bar. In American Bayridge,
Customs decided, on its own motion, to reinterpret the coverage of
certain tariff classifications, see 35 F. Supp. 2d at 923-24; in
this action, however, Customs merely applied a judicial decision to
the vessel repair entries before it. Further, in American
Bayridge, Customs expressly revoked an identified ruling, see id.
at 924; whereas here, Customs’ HQ memoranda and the protest review
decisions took no such action. The fact that American Bayridge
held that 19 U.S.C. § 1625(c) is mandatory does not make it
applicable to cases that fall outside of its purview such as this
action. Accordingly, the Court concludes that plaintiffs’ reliance
on American Bayridge is inappropriate.
V. Customs’ Alleged Pro-Rata Duty Assessment
of Certain Vessel Repair Expenses
Plaintiffs initially noted in their brief that an expense
under Texaco’s “but for” test is either an expense of repair or it
is not, that is, the repair cannot be both dutiable and
nondutiable. See Pls.’ Mem. Supp. Mot. Summ. J. at 20. Thus,
plaintiffs argued in their brief that Customs erred under Texaco
and 19 U.S.C. § 1466(a) in assessing duties on a pro-rata basis to
Consol. Court No. 96-02-00398 Page 32
certain vessel repair entries in this case if Customs found any
dutiable reason for the expense of the repair work. See id. at 18-
21. Nevertheless, in their reply brief, plaintiffs assert that
while they have identified an entry that was prorated, they
acknowledge this entry does not concern a pro-rata duty that
conflicts with Texaco. See Pls.’ Reply Opp’n to Def.’s Cross-mot.
Summ. J. at 2-3, 14. Plaintiffs, therefore, contend that their
proration issue should be dismissed or severed from this action to
allow them to litigate the issue in related actions which more
accurately raise the issue. See id.
Defendant asserts that plaintiffs’ proration issue should not
be dismissed or severed because the issue was never raised in this
action. See Def.’s Mem. Reply to Pls.’ Opp’n to Def.’s Cross-mot.
Summ. J. at 4 n.4. Moreover, defendant claims that since the issue
of proration based on a misapplication of Texaco’s “but for” test
was never raised by plaintiffs in any of their entries or the
complaints in this action, the Court does not have jurisdiction
over the issue and, therefore, summary judgment on this matter is
improper and must be denied. See id.
Contrary to defendant’s assertion of lack of jurisdiction, the
Court finds that, in general, plaintiffs raised the proration issue
in this action because APL’s complaint and the parties’ stipulation
Consol. Court No. 96-02-00398 Page 33
of facts alluded to the issue.10 Nevertheless, the Court agrees
with both parties that the issue of proration based on a
misapplication of Texaco’s “but for” test was not specifically
discussed in this action. Accordingly, the Court declines to
address the issue and, therefore, summary judgment on the issue is
denied.
CONCLUSION
For the foregoing reasons, the Court grants defendant's
cross-motion for summary judgment and denies plaintiffs’ motion.
The action is dismissed. Judgment will be entered accordingly.
______________________________
NICHOLAS TSOUCALAS
SENIOR JUDGE
Dated: September 23, 1999
New York, New York
10
See APL Compl. at ¶ 8 (stating that “Customs has improperly
applied and impermissibly expanded the Court’s ruling in Texaco .
. . in that . . . they have apportioned duty when the ‘but for’
test in Texaco has been met”); Stip. Facts at ¶ 5 (“Some of the
protests which are the subject of the complaints consolidated in
this action relate to duty assessed to certain items on a pro rata
basis apportioned by Customs to reflect what Customs alleges are
the dutiable and non-dutiable foreign costs in this entry.”).
Sea-Land Service, Inc. v. United States
Court: United States Court of International Trade
Date filed: 1999-09-23
Citations: 69 F. Supp. 2d 1371, 23 Ct. Int'l Trade 679
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