United States
Court of Appeals for the Federal Circuit
00-1047
SEA-LAND SERVICE, INC.,
(now known as SL Service Inc.)
Plaintiff-Appellant,
and
AMERICAN PRESIDENT LINES, LTD.
(now known as American Ship Management,
LLC),
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
Evelyn M. Suarez, Sonnenschein, Nath & Rosenthal, of
Washington, DC, argued for plaintiff-appellant. With her on the
brief was Myles J. Ambrose, Arter & Hadden LLP, of
Washington, DC. Also on the brief for American Ship Management,
LLC, was Charles Routh, Garvey, Schubert & Barer,
of Seattle, Washington. Of counsel was Marc Richard Baluda,
Arter & Hadden, LLP, of Washington, DC.
Barbara S. Williams, Attorney, Commercial Litigation Branch,
Civil Division, International Trade Field Office, Department
of Justice, of New York, New York, argued for defendant-appellee.
With her on the brief were David M. Cohen, Director, Commercial
Litigation Branch, of Washington, DC; and Joseph I. Liebman,
Attorney in Charge, International Trade Field Office, of New
York, New York. Of counsel on the brief is Karen P. Binder,
Office of Assistant Chief Counsel, International Trade Litigation,
U.S. Customs Service, of New York, New York.
Lauren R. Howard, Collier, Shannon, Rill & Scott, PLLC,
of Washington, DC, argued for amicus curiae Shipbuilders Council
of America, Inc.
Appealed from: U.S. Court of International
Trade
Senior Judge Nicholas Tsoucalas
United States Court of Appeals
for the Federal Circuit
00-1047
SEA-LAND SERVICE, INC.,
(now known as SL Service
Inc.),
Plaintiff-Appellant,
and
AMERICAN PRESIDENT LINES,
LTD.,
(now known as American Ship
Management, LLC),
v.
UNITED STATES,
________________________
DECIDED: February 16, 2001
________________________
Before SCHALL, BRYSON, and LINN,
Circuit Judges.
SCHALL, Circuit Judge.
Under 19 U.S.C. § 1466(a),
a duty is imposed on the expenses of repairs on United States
vessels in foreign shipyards. In Texaco Marine Services, Inc.
v. United States, 44 F.3d 1539, 1543-44 (Fed. Cir. 1994),
we held that dutiable expenses under § 1466(a) include all
expenses that would not have been incurred "but for"
the vesselís repairs. In this case, Sea-Land Service,
Inc. and American President Lines, LTD, now known as American
Ship Management, LLC (referred to collectively as "Sea-Land"),
incurred repair expenses on United States vessels in foreign
shipyards with respect to which the United States Customs Service
("Customs") assessed duties pursuant to § 1466(a),
following the "but for" test articulated in Texaco.
Sea-Land protested the assessments. Following Customsí
denial of the protests, Sea-Land appealed to the United States
Court of International Trade. In its appeal, Sea-Land argued
that the assessments were unlawful because, in denying its protests,
Customs had violated 19 U.S.C. § 1625(c) by failing to publish
the denials in the Customs Bulletin and Decisions ("Customs
Bulletin") and by failing to provide for notice and comment
with respect to the rulings on the assessments. Sea-Land argued
that such actions were required because the denials of its protests
amounted to interpretative rulings or decisions by Customs that
modified, revoked, or had the effect of modifying or revoking
earlier rulings or decisions that predated Texaco, thus
bringing into play the notice and comment requirements of §
1625(c). In due course, Sea-Land and the United States moved
for summary judgment. The court denied Sea-Landís motion,
but granted that of the United States, concluding that Customsí
actions in the case did not trigger the notice and comment requirements
of § 1625(c). Sea-Land Serv., Inc. v. United States,
69 F. Supp. 2d 1371 (Ct. Intíl Trade 1999). We affirm.
BACKGROUND
I.
Section 1466(a) provides, in relevant
part:
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. . . . For the purposes
of this section, compensation paid to members of the regular
crew of such vessel in connection with the installation of any
such equipments or any part thereof, or the making of repairs,
in a foreign country, shall not be included in the cost of such
equipment or part thereof, or of such repairs.
Under the statute, a fifty percent
duty is imposed "on the value of ëexpenses of repairsí
made in a foreign country upon United States-flagged vessels."
Texaco, 44 F.3d at 1540. Section 1466(a) provides that
if the expenses incurred in a foreign port are not the "expenses
of repairs" described in the statute, then the expenses
are not subject to the fifty percent duty. Id. at 1540-41.
In Texaco, we were asked
to review a Court of International Trade decision affirming Customsí
determination that certain cleaning and equipment protective
covering expenses incurred by a United States vessel in a foreign
port were "expenses of repairs" under § 1466(a)
and thus dutiable. Id. at 1540. The specific expenses
at issue were expenses associated with clean-up following boiler
room, cargo tank, and "after peak" tank repairs and
expenses associated with protective coverings used during cargo
tank repairs. Id. at 1541-52. In reviewing the Court of
International Tradeís decision, we first interpreted "expenses
of repairs" under § 1466(a) to mean those repair expenses
that would not have been incurred "but for" the repair
work. Id. at 1544-45. In coming to this conclusion, we
rejected earlier, more restrictive definitions of "expenses
of repairs" by the Court of International Trade and the
United States Customs Court. Id. at 1546-47. We then applied
the "but for" approach under § 1466(a) to the
expenses at issue and found that both the clean-up expenses,
id. at 1548-50, and the expenses associated with the protective
coverings, id. at 1550, were expenses that would not have
been incurred "but for" the vessel repairs. Therefore,
we agreed with the Court of International Trade that Customs
properly determined that those vessel repair expenses were dutiable
under § 1466(a).
II.
We issued our Texaco decision
on December 29, 1994. Shortly thereafter, on January 18, 1995,
the Assistant Commissioner for Customs Office of Regulations
and Rulings ("Assistant Commissioner") issued Headquarters
("HQ") memorandum 113308 to Customsí New Orleans
Regional Director. The HQ memorandum was later published in the
Customs Bulletin. HQ memorandum 113308 stated that the "but
for" test for dutiable expenses of repair under § 1466(a)
described in Texaco had "wide-ranging ramifications
with respect to Customsí liquidation of vessel repair
entries." In the memorandum, it was noted that certain expenses
that Customs currently did not consider "expenses of repairs"
under 19 U.S.C. § 1466(a), such as travel or transportation,
would, under certain circumstances, "undoubtedly constitute
dutiable ëexpenses of repairsí under the ëbut
forí test" set forth in Texaco. The HQ memorandum
stated that all costs not finally liquidated as of the date of
Texaco "should be liquidated as dutiable as ëexpenses
of repairsí provided they pass the ëbut forí
test discussed above."
Sea-Land declared and entered vessel
repair expenses with Customs from January 1995 through March
1996. The expenses involved work performed on several United
States-flagged vessels by foreign labor. The expenses listed
in the entries included expenses associated with transportation,
travel, equipment rental, meals, administrative insurance, and
tax costs.
Representatives of Sea-Land met
with Customs officials on February 22, 1995, to discuss the ramifications
of the Texaco decision, HQ memorandum 113308, and their
belief that Customs needed to comply with the notice and comment
requirements of 19 U.S.C. § 1625(c) with respect to any
rulings concerning the 1995-1996 repair expenses. On March 3,
1995, the Assistant Commissioner issued HQ memorandum 113350,
which was subsequently published, modifying HQ memorandum 113308.
The new HQ memorandum provided that, instead of applying the
"but for" test described in Texaco to all vessel
repair expenses unliquidated at the time of the Texaco
decision, Customs would only apply the test prospectively to
entries filed after the date of the decision. The only exception
to this rule was that the "but for" test would apply
to unliquidated vessel repair expenses of the kind that were
specifically at issue in Texaco, cleaning and protective
covering expenses.
Customs then proceeded to examine
each of Sea-Landís vessel repair expense entries, finding
that some, but not all, of the entered expenses satisfied the
"but for" test and were thus dutiable under §
1466(a). Sea-Land paid the liquidated duties on the applicable
vessel repair entries and then filed administrative protests
with Customs concerning the liquidations. After Customsí
denial of the protests and further requests for review, Sea-Land
appealed to the Court of International Trade seeking to recover
the duties assessed by Customs under § 1466(a).
III.
Before the Court of International
Trade, the parties stipulated to the pertinent facts. First,
they agreed that, prior to Texaco, Customs had issued
certain HQ rulings regarding the assessment of duties under §
1466(a) that had not been revoked, rescinded, or amended. Sea-Land,
69 F. Supp. 2d at 1375. The parties also agreed that these earlier
HQ rulings involved duties on one or more of the expenses that
were the subject of Sea-Landís protests. Id. In
addition, the parties agreed that none of the duties under protest
involved cleaning or protective covering expenses similar to
those disputed in Texaco. Id. Finally, Sea-Land
and the government stipulated that "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 dutiable
and nondutiable foreign costs of an entry." Id.
With the above stipulation forming
a backdrop, the parties cross-moved for summary judgment. In
that setting, Sea-Land made three basic arguments. First, it
argued that Customs had not actually applied the "but for"
analysis to each of the expenses at issue. Id. at 1376.
The Court of International Trade rejected this argument, concluding
that Customs had conducted "a case-by-case ëbut forí
analysis for each expense at issue." Id. The court
cited HQ memorandum 113308ís instruction to evaluate each
vessel repair entry under the "but for" standard as
support for its conclusion. Id.
Sea-Land also argued that Texaco
required that Customs determine whether assessing duties on a
particular vessel repair expense runs counter to an established
and uniform practice ("EUP") of non-dutiability with
respect to that expense. Id. at 1377. Sea-Land asserted
that Customsí decision on its expenses changed various
EUPís and that, consequently, Customs was required to
comply with the notice requirement of 19 U.S.C. § 1315(d)
before any duties could be assessed. Id. at 1377-78. Addressing
this contention, the Court of International Trade reasoned that
the notice requirement of 19 U.S.C. § 1315(d) did not apply
because it was this courtís holding in Texaco,
not an "administrative ruling" as required by §
1315(d), that impacted the assessment of duties on Sea-Landís
vessel repair expenses. Id. at 1379-80. The court therefore
rejected Sea-Landís second argument.
Finally, Sea-Land argued that Customs
had violated 19 U.S.C. § 1625(c) by issuing protest review
decisions that modified or revoked prior Customs "interpretative
rulings or decisions" without providing the required notice
and comment period described in § 1625(c). Id. at
1380. The Court of International Trade concluded, however, that
this courtís decision in Texaco, not a Customs
ruling, had established the statutory interpretation that modified
or revoked previous Customs decisions, and that the notice and
comment requirements of § 1625(c) thus did not apply. Id.
at 1381. The court also concluded that a notice and comment period
under § 1625(c) would serve no purpose because Customs was
bound by this courtís decision in Texaco. Id.
at 1381-82. Consequently, it had no discretion or ability to
modify the decision; it therefore would be unable to respond
to any comments it received. Id. Having rejected all of
Sea-Landís arguments, the court granted summary judgment
in favor of the government.
Sea-Land appeals the Court of International
Tradeís decision. We have jurisdiction over the appeal
pursuant to 28 U.S.C. § 1295(a)(5).
DISCUSSION
I.
Summary judgment is proper by the
United States Court of International Trade when "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." Ct.
Intíl Trade R. 56(d). We review a grant of summary judgment
by the Court of International Trade "for correctness as
a matter of law, deciding de novo the proper interpretation
of the governing statute and regulations as well as whether genuine
issues of material fact exist." Guess?, Inc. v. United
States, 944 F.2d 855, 857 (Fed. Cir. 1991). On appeal, Sea-Land
does not challenge Customsí application of the "but
for" test under § 1466(a) to its vessel repair expense
entries or the Court of International Tradeís ruling on
19 U.S.C. § 1315(d). Rather, it contends that Customs was
required to comply with the notice and comment requirements of
19 U.S.C. § 1625(c) when it determined that the vessel repair
expenses at issue were dutiable under 19 U.S.C. § 1466(a).
As it did in the Court of International
Trade, Sea-Land argues that Customsí determination that
certain vessel repair expenses were dutiable expenses under §
1466(a) and its denial of Sea-Landís protests were "interpretative
ruling[s] or decision[s]" under § 1625(c). Sea-Land
contends that these interpretative rulings or decisions by Customs
modified, revoked, or had the effect of modifying earlier rulings
or decisions by Customs that the vessel repair expenses at issue
were not dutiable under § 1466(a). Sea-Land argues that
since Customsí assessment of duties against it involved
interpretative rulings or decisions that modified or revoked
earlier Customs rulings or decisions, Customs was required by
§ 1625(c) to provide notice and comment before liquidating
Sea-Landís vessel repair expense entries. Sea-Land argues
that Texaco did not revoke Customsí prior rulings
or decisions regarding the dutiability of specific vessel repair
expenses at issue because it did not address whether the expenses
at issue in this case were dutiable. Sea-Land acknowledges that
Texaco established the "but for" test for determining
which expenses are dutiable under § 1466(a), but asserts
that the Texaco court only decided, under the "but
for" test, that cleaning and protective covering expenses
were dutiable.
The government responds that §
1625(c) does not apply to Customsí actions in this case
because Customs did not issue any "interpretative ruling[s]
or decision[s]." The government also argues that this court
in Texaco, not Customs, modified or revoked any existing
rulings or decisions involving the particular expenses at issue
because this court in Texaco, not Customs, established
the "but for" test under § 1466(a). The government
also argues that any change in Customsí treatment of particular
vessel repair expenses was a change mandated by Texaco
that Customs properly followed in this case by applying the "but
for" test to Sea-Landís vessel repair expense entries.
For the reasons that follow, we
reject Sea-Landís arguments and conclude that Customsí
actions in this case did not trigger the notice and comment requirements
of 19 U.S.C. § 1625(c).
II.
Entitled "Modification and
revocation," 19 U.S.C. § 1625(c) states that:
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.
Section 1625(c) mandates that Customs
provide notice and comment under specific circumstances. First,
§ 1625(c) only applies to a "proposed interpretive
ruling or decision" by Customs. Id. Second, the proposed
interpretive ruling or decision must either modify or revoke
a prior ruling or decision or have the effect of modifying Customsí
previous treatment of "substantially identical transactions."
Id. Section 1625(c) requires that, before Customs issues
such an interpretative ruling or decision, it publish it and
allow interested parties an opportunity to comment on its correctness.
Id. The statute instructs Customs to consider the comments
it receives. Id. Section 1625(c) then provides that the
final ruling or decision will become effective 60 days after
its publication. Id.
III.
For purposes of this appeal, we
will assume, without deciding, that the first requirement of
§ 1625(c) is met?that Customsí actions with respect
to Sea-Landís vessel repair expense entries are ìinterpretative
ruling[s] or decision[s]î under § 1625(c). Sea-Landís
argument fails, however, because the second requirement of §
1625(c) is not met. The reason is that Customsí "interpretative
ruling[s] or decision[s]" in this case did not modify, revoke,
or have the effect of modifying earlier Customs interpretative
rulings, decisions, or treatment of substantially identical vessel
repair expenses under § 1466(a). Before Customsí
actions in this case, this courtís decision in Texaco
in late 1994 had the effect of modifying all of Customs previous
rulings, decisions, and treatment of vessel repair expenses under
§ 1466(a). Since Customsí actions do not meet the
second condition under § 1625(c), the notice and comment
requirements described in § 1625(c) were not triggered.
It was this court in Texaco
that modified the treatment of vessel repair expenses under §
1466(a). We "clarif[ied]" the judicial interpretation
of 19 U.S.C. § 1466(a) in Texaco, explaining that,
based on the plain language of the statute, "expenses of
repairs" in § 1466(a) meant those expenses that would
not have been incurred "but for" the shipís
repair. Texaco, 44 F.3d at 1546. With this explicit interpretation
of § 1466(a), Texaco wiped the slate of decisions
under § 1466(a) clean, requiring the dutiability of all
vessel repair expenses to be determined by the "but for"
test. Customs is required to follow and apply the "but for"
test. See Chevron, U.S.A., Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837, 843 n.9 (1984) (noting that
"[t]he judiciary is the final authority on issues of statutory
construction" and that when a "court, employing traditional
tools of statutory construction, ascertains that Congress had
an intention on the precise question at issue, that intention
is the law and must be given effect"). Any decision by Customs
after Texaco is a decision under the new, clarified standards
for determining what expenses under § 1466(a) are dutiable.
Since this court, through its decision in Texaco, changed
Customsí earlier treatment of vessel repair expenses under
§ 1466(a), Customsí actions after Texaco cannot
be recognized as rulings or decisions that revoke or modify Customsí
earlier decisions under § 1466(a). Furthermore, Customs,
required to act under this courtís interpretation of §
1466(a), cannot be said to be the one changing any of its previous
decisions; our decision in Texaco created those changes.
Sea-Land is correct that Texaco
did not apply the "but for" test to the particular
expenses at issue in this case. As noted above, Texaco
only dealt with the application of the "but for" test
to two types of vessel repair expenses?cleaning and protective
covering costs. Texaco, 44 F.3d 1548-50. However, when
Customs deviates from its prior practice when evaluating a vessel
repair expense after Texaco to determine whether that
expense meets the "but for" test, Customs is following
the new rules established by this court. Again, any change in
Customsí treatment of a particular expense is the doing
of our decision in Texaco, not a decision by Customs.
In effect, in making the decisions it made regarding Sea-Landís
expenses after Texaco, Customs was deciding vessel repair
expense issues for the first time under the "new" interpretation
of § 1466(a) set forth in Texaco. Thus, Customsí
decisions cannot be considered to be modifications of Customsí
earlier treatment of those expenses, because, in essence, there
was no previous treatment under the "new" interpretation
of § 1466(a).
Our holding that our decision in
Texaco, and not Customsí decisions regarding each
of Sea-Landís expenses, modified Customsí earlier
treatment of all vessel repair expenses under § 1466(a)
is supported by the policy and purpose behind § 1625(c).
The legislative history of § 1625(c) indicates that the
statuteís purpose is to provide "assurances of transparency
concerning Customs rulings and policy directives through publication"
of Customsí rulings or decisions that modify or revoke
an existing ruling or decision. H.R. Rep. No. 103-361, at 124
(1993), reprinted in 1993 U.S.C.C.A.N. 2551, 2674. Section
1625(c)ís notice and comment requirements are intended
to ensure that the interested public has notice of a proposed
change in Customsí policy and to allow the public to make
comments on the appropriateness of the change and to modify any
current practices that were based in reliance on Customsí
earlier policy. Section 1625(c) also provides for Customs to
make an informed decision when changing its policies through
the comments it receives.
Since it was our decision in Texaco,
not Customsí later actions in this case, that changed
Customsí policy towards dutiability of vessel repair expenses
under § 1466(a), the policy reasons for notice and comment
embedded in § 1625(c) do not apply. The interested public
was given notice of the modification in the way vessel repair
expenses would be determined to be dutiable under § 1466(a)
by way of the publication of this courtís decision in
Texaco. Furthermore, although Customsí individual
evaluation on certain expenses may represent the first time that
specific expenses are handled differently, the new approach was
not brought on by the will of Customs, but by the decision in
Texaco, a decision of which the public was notified. Additionally,
comments from the interested public on Customsí actions
under these circumstances are not helpful because Customs is
merely implementing this courtís interpretation of §
1466(a), an interpretation that, as noted above, Customs is required
to follow. Notably, 19 U.S.C. § 1625(d) calls for notice
and comment when Customs "proposes to limit the application
of a court decision," something which Customs is not doing
in this case with regards to Texaco, as can be seen in
HQ memorandum 113308. Put simply, since Customsí change
in the way it approached vessel repair expenses under §
1466(a) was mandated by our decision in Texaco, not a
self-proposed change by Customs, requiring notice and comment
in this case would not serve the purpose and policy behind §
1625(c).
CONCLUSION
For the foregoing reasons, the decision
of the Court of International Trade is
AFFIRMED.
Each party shall bear its own costs.
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