# United States v. UPS Customhouse Brokerage, Inc. > United States Court of International Trade · May 28, 2008 · 558 F. Supp. 2d 1331 URL: https://www.frixlaw.com/law-library/cases/817486 ## Case - **Full name:** UNITED STATES, Plaintiff, v. UPS CUSTOMHOUSE BROKERAGE, INC., Defendant - **Court:** United States Court of International Trade - **Decided:** May 28, 2008 - **Citations:** 558 F. Supp. 2d 1331; 32 Ct. Int'l Trade 575; 32 C.I.T. 575; 30 I.T.R.D. (BNA) 1779; 2008 Ct. Intl. Trade LEXIS 59 - **Precedential status:** Published - **Opinion:** Opinion by Carman - **Judges:** Carman - **Cited by:** 3 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/817486 ## How later opinions describe it (automated extraction) - finding on the trial record that, despite (a) UPS’s very low rejection rate and (b) UPS training programs in response to Customs warnings (two relevant § 111.1 factors), UPS failed to exercise responsible supervision and control - stating that "[t]he Court reviews a case brought under 19 U.S.C. § 1641(d)(2)(A) de novo as to the facts, the law, and the amount of the penalty” in its post-trial determination ## Opinion text SLIP OP. 08-60 UNITED STATES COURT OF IN'I'ERNATIONAL TRADE UNITED STATES, Plai“tifff BEFORE: ]UDGE GREcoRY W. CARMAN Court No. 04-00650 UPS CUSTOMHOUSE BROKERAGE, INC., Defendant. [Held: after trial, the Court finds that Defendant rnisclassified the subject rnerchandise; that such misclassifications under the circumstances of this case constitute multiple failures to exercise responsible supervision and control in violation of section 641 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1641; and that the consequent fines imposed by Plaintiff are fair and reasonable judgment for Plaintiff.] Gregory G. Katsas, Acting Assistant Attorney General, |eanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of ]ustice (Melinda D. Hart, Courtney E. Sheehan, and Nancy I1559934 1-22~00 5324)166710-5 000 110 2000 1-234)0 5324)166776»2 [Pr&pe"a"y N°"°°S] 20004196-300222 1-244)0 532-0168407-2 S"’P*°"‘b°' 261 2°°° 1-254)0 5824)16364€»5 [Pena|ty Notioes] 1-25~00 582~0163649 3»244)0 5324)2423243 3»244)0 5324)242341-3 3-29-00 532»0248249-2 4_3-00 5824)2523914 4~€»00 5324)2583?9~4 ,\00051 0_ 2000 2000-4196-300319 4-¢.=000 532-0253099~3 [P'e`pe"a"y N°"°es] 4-6~00 532-02535526 O°‘°"e' 19' 2°°° 4-7-00 5324)259972-5 [Penalty Notioes] 4-12-00 532-0266194-7 4-134)0 532-0266653-1 4-15-00 582-0212335-3 4-19-00 532-0273835-1 4-20-00 532-0275794-3 20004195-300320 4_20-00 532-0276456-5 4-21-00 532-0278391-5 Court No. 04-00650 - Page 9 4-21-00 582-0278099-4 4-21-00 582-0276683-`:' 4-25-00 582-0279974-7 5-3-00 582-0289733-5 5-3-00 582-0290367-9 5-4-00 582-0291357-9 5-4-00 582-0291150-8 5-4-00 582-0292552-4 5-4-00 582-0292853-6 8. The parties stipulated that there exists a factual dispute over whether the following five entriess of merchandise, entered under 30.90, contained a CRT: - 2- 1 7461-2 Ju|y11.2000 2000_4195_300221 116-00 58 0 5 [Pre-pena|ty Notloes] Sepfember 26, 2000 2000_4196_300223 2-10-00 582-0188677-6 [Pena|ty Notioes] AugUSi B, 2000 3-23-00 582-0245010-1 [P'e'pe"""¥ N°“°‘*S] 2000~419&300319 october 1 gi 2000 4-9-00 582-026'1 334-4 Penalty N°ti°°s] 5 9-00 532-0293393-5 2000-4196-300320 ' ”Customs withdrew evidence pertaining to three entries since the supporting documents were inadvertently not disclosed to UPS prior to trial. (Sg Tr. 277-82:7, 295- 97.) The entries are: entry number 582-0165996-7 [dated jan. 1, 2000, penalty action 2000-4196-300221]; entry number 582-0276226-5 [dated Apr. 20, 2000, penalty action 2000-4196-300320 ]; and entry number 582-0276220-8 [dated Apr. 20, 2000, penalty action 2000-4196-300320 ]. (Exs. 19, 45, & 46.) Consequently, Customs did not meet its burden to show that these three entries were misclassified, Court No. 04-00650 Page 10 (PTO, Schedules C and C'; Tr. 34-35, 265-66; Exhibits (“Exs.”)’° 16, 27, 33, 40, & 59.) IV. Findings of Fact The Court makes the following findings of fact based on the testimony and evidence presented at trial, and the Agreed Facts adopted by the parties: 1. UPS is an express consignment operator (“ECO")“’ responsible for preparing and filing customs entry documents on behalf of its clients and has been a licensed customs broker since 1985. (E First Am. Compl. 'jj 3; Answer ‘1[ 3; PTO, Schedule C, ‘][ 1; Tr. 59:8-15, 671-72, 679-81.) 2. UPS operated at six different “hub” cities, with the largest hub being at Louisville, Kentucky. (Tr. 498-99.) 3. UPS considered itself to be in a ”partnership" with Customs so that as issues arose, both positive and negative, courtesy telephone calls would be generated at the highest levels of management in order to address issues and devise appropriate response plans in a spirit of cooperation. (Tr. 704-10, 733-35, 740-42, 809.) gCustoms's trial exhibits are designated by numbers, whereas UPS’s trial exhibits are designated by letter. “’Customs regulations define an "express consignment operator or carrier" as "an entity operating in any mode or intermodally moving cargo by special express commercial service under closely integrated administrative control. Its services are offered to the public under advertised, reliable timely delivery on a door-to-door basis. An express consignment operator assumes liability to Customs for the articles in the same manner as if it is the sole carrier." 19 C.F.R. § 128.1(a) (2006). Court No. 04-00650 Page 11 4. ln the period january through May 2000, UPS made approximately 2,900-3,900 Customs entries per day at its Louisville facility totaling approximately 375,000 entries for this period. (Tr. 569-70, 569-70.) 5. During this same period, UPS made Customs entries of ”thousands” of computer parts and accessories. (Tr. 633-34.) 6. Beginning around 1995, Customs instituted a compliance measurement program in order to assess and improve Customs’s compliance figures as measured against merchandise entry summaries. Entry summaries are filed by importers and brokers ten days following the release of merchandise, when duties are deposited. (Tr. 94-97.) '7. Customs headquarters determined that certain industries would be designated as ”primary focus industries" pursuant to the compliance measurement program. In Mr. Piedmont's commodity team, the communications industry was the primary focus industry that was concentrated upon. (Tr. 95-100; 114.) 8. Particularly, Customs decided to narrow the focus on the communications industry’s compliance rates for merchandise entered under HTSUS heading 8473. Customs determined that subheading 8473.30.9000 had extremely low compliance rates. In fact, merchandise classified with subheading 8473.30.9000 was classified “99% of the time in error." (Tr. 171-72, 1'79, 207, 244; Ex. 114 at 5.) Customs partially attributed the industry’s low compliance rate for subheading 8473.30.9000 to its use as a "convenience Court No. 04-00650 Page 12 classification" or ”basket provision" in that through its use by brokers or irnporters, the release of merchandise could be obtained from Customs without the broker determining what in fact was the correct classification (Tr. 93-94, 114, 121-22, 125, 178- 80, 182, 207, 240-41, 243-44, 368-69, 854-57; Exs. 113, 114 at 5.) 9. Customs notified various members of the trade community, including UPS, not to use convenience classifications. Particularly, on April 3, 1996, Customs issued a memorandum to importers and brokers doing business at the port-called a ”port pipeline” -notifying all interested parties that the use of convenience classifications was prohibited. (Ex. 89; Tr. 91-94, 175-83, 850-57.) 10, Customs considers proper classification of merchandise important and not limited to revenue purposes, but also for maintenance of accurate trade statistics. (Tr. 218-20, 923-14.) The rate of duty for 30.90 is ”free” or 0% ad valorem. 11. As part of its compliance efforts, Customs provided training sessions to the industry. Particularly, between September 9 and 11, 1997, Customs at the Port of Cleveland, provided training to UPS at a “Train-the-Tramer” program, where, in addition to instruction, educational materials were distributed to all participants. (Exs. A, 99-102, 108; Tr. 86-91, 128-35, 866-68.) 12. Customs presented a variety of topics at the ”Train-the-Trainer” program, which was attended by UPS personnel, including instruction on section and chapter Court No. 04-00650 Page 13 notes to Chapters 84 and 85 of the HTSUS and seven different tariff headings including heading HTSUS 84'73. (Exs. A, 99-101; Tr. 86-91, 128-35, 187-88, 866-68.) 13. Specifically discussed at the "Trairi-the-Trairier” program were what Customs termed “areas of concern" and ”discrepancies within particular HTS numbers." (Ex. 106.) 14. Customs’s instructors and materials drew attention to I-ITSUS Chapter 84, particularly 30.90. Participants were instructed that “[a]ll of the items under these numbers must contain a cathode ray tube . . . . These numbers should almost never be used. Using 8473.30.9000 sends up the red flag to Customs to look at that entry-it is usually never correct!!!" (Ex. 108 p. 34 (emphasis in original); Tr. 136-38.) 15. UPS represented to Customs by letter that it had participated in the ”Train- the-Trainer” program and received instruction on Customs’s areas of concern, including HTSUS heading 8473. (Ex. 104.) Begirming in late September 1997 and continuing into 1998, UPS developed a compliance plan that featured the seven tariff headings highlighted at the "Train-the-Trainer” program, including heading HTSUS 8473. (Ex. B; Tr. 600-03.) UPS continued with these efforts over the subsequent months, which manifested itself in the form of additional internal UPS compliance and commodity training for classification personnel and the creation of a new position dedicated to training (E'.xs. E, F,' Tr. 537, 600-03.) Court No. 04-00650 Page 14 16. In a letter dated October 8, 1997, Customs notified UPS of its compliance rate for various tariff headings including heading _HTSUS 8473, which was 54.35%. (Ex. 103.) One year later, Customs revised UPS's 1997 compliance rate for heading HTSUS 8473 to 59.52%. (E`.x. AA.) Additionally, Customs apprised UPS that heading I-ITSUS 84'73 was receiving “heightened scrutiny" by the Bureau. (Exs. 103, AA.) 17. Subsequently, in a December 22, 1997 letter, UPS notified Customs of its compliance training efforts, which ”emphasized the importance of the accurate use of the tariff numbers under these headings,” and ”provided [approximately 100 of] its rating group [personnel] with detailed information as to invoice requirements and the need for customer follow-up when invoices are deficient." (Ex. 107.) 18. Again, on February 12, 1998, UPS informed Customs by letter of its compliance training efforts, including further training and hiring additional compliance personnel. (Ex. 109.) 19. Customs conducted an on-site visit to UPS's Louisville, Kentucky facility on February 17-18, 1998 and among the issues discussed were UPS's ”compliance rates of HTSUS 8471 and 8473." (Exs. 110-12.) 20. Notwithstanding efforts by UPS to improve its compliance rates through training and other means, its niisclassification of merchandise under 30.90 continued. (sxs. 34-86, 90; Tr. 251-56.) Court No. 04-00650 Page 15 21. Between September 1997 and May 1998, Customs had notified UPS on multiple occasions about the improper use of 30.90 through its training efforts, Notices of Action (a.k.a. Customs Form 29 (CF-29)), and phone calls between its import Specialists and UPS personnel. On May 6, 1998, Customs issued a warning letter to UPS “strongly suggesting" that UPS review the types of merchandise classifiable under 30.90. Customs explained that UPS “consistently used this particular HTS[US] number . . . when in fact, Customs has informed [UPS] that this HTS[US] number should rarely be used, unless it is for ’parts of ADP“, incorporating a cathode ray tube.’” (Exs. 84-86, 90, 92-98, 100-01, 103-116, H, I; Tr. 247, 256-57, 878-79.) '22. On or about May 19, 1998, UPS finally decided, on its own accord and as a failsafe measure, to remove the tariff number 30.90 from UPS's electronic data file (the "tariff tape"), which contained the entire HTSUS, in order to physically prevent its use and thus eliminate potential misclassifications. (Ex. l; Tr. 477-78, 509-10.) Along with personnel training endeavors, UPS substantially relied on the removal of tariff number 30.90 from the tariff tape as its principle means of maintaining compliance. 23. Tariff tape revisions were provided to UPS by Customs twice a year-typically each january and july. Removal of the tariff number 30.90 from the UPS tariff tape was conducted by UPS computer systems personnel and needed to “An ”ADP" is an ”automated data processing machine," g a computer. HTsUs heading 8471. Court No. 04-00650 Page 16 occur each time a new tariff tape was issued, so long as UPS wanted to physically prevent its employees from using the 30.90 tariff subheading. (Tr. 510-11, 521, 608-09.) 24. UPS continued to remove 30.90 from the tariff tape through the second half of 1998 and continuously through 1999. UPS had informed Customs that it had removed the 30.90 tariff number from its tariff tape so that its “classification specialist[s could] . . . not use it without further investigation as to whether the merchandise contains a [CRT] or not.” (Ex. CC.) 25. Though UPS had removed 30.90 from the tariff tape, it could nevertheless be “manually” entered by a UPS classification specialist, following a review of the commercial invoice and upon receiving the appropriate supervisory and technical approvals. In the ”rare” case where the importer ”insisted" that 30.90 was the appropriate subheading, following UPS supervisory scrutiny and vetting, UPS would then manually enter it under this tariff number. (Tr. 513-14, 544-48, 555-56, 595-98.) 26. Through the first three quarters of FY 1998, UPS had improved its compliance rate for heading HTSUS 8473 to an unweighted” 80.00%. (Ex. AA.) In FY 1998, the national average compliance rate for heading HTSUS 8473 for ECOS was 65% (Ex. 113; Tr. 201-05.) 27. ln a December 3, 1998 letter, the Cleveland Port Director for Customs’s john M. Regan, acknowledged to Norm Schenk, UPS, that UPS had participated in training "That the reported compliance rate was ”unweighted” would only account for a variance of 1-2% at most. (Tr. 212.) Court No. 04-00650 Page 17 and problem solving sessions with Customs. The letter reflected upon the notion that such participation improved the communications between UPS and Customs. (Ex. K; Tr. 703-04.) 28. Between mid-1998 through the end of 1999, there were no entries made by UPS that were the subject of any Customs Notices of Action involving the use of 30.90. (Tr. 927-28.) However, there were several entries during this period that had been improperly classified utilizing the tariff number 30.90. (Exs. 86-88; Tr. 258-59.) 29. On September 21, 1999, Customs announced a new nationwide initiative directed at ECOs, called the Multi-port Approach to Raise Compliance, or ”MARC 2000." Customs noted that ECOs generally had maintained a 65% compliance rate for heading 8473 in 1999, and set as its goal 89% compliance by 2000, and 95% by 2004. 30. Customs conducted formal training under the aegis of MARC 2000, as well as other informal sessions. Again, UPS participated and was instructed on the proper use of 30.90, which is to say, UPS was instructed not to use it. (Exs. 91, 110-14, M, O; Tr. 85-87, 623-24, 872-74.) 31. Testimony by Messrs. Welch and Woods explained that though UPS had, by plan, been removing 30.90 from its tariff tape, with the latest revision in the HTSUS in january 2000, UPS had failed to execute the removal of 30.90 from the tariff tape, and continued not to do so until at least the end of May 2000. (Tr. 520-22, 544-56, 560-61, 563-65, 603-13.) Court No. 04-00650 Page 18 32. On january 31, 2000, Customs issued a second warning letter to UPS concerning the misuse of 30.90, stressing that “Customs is paying close attention to those filers/importers who do not fulfill their legal obligations in the preparation, research and submission of Customs entries, Frequent or repetitive errors . . . will be met with appropriate action." (Ex. 91 ; Tr. 884-85.) 33. UPS never communicated to Customs that 30.90 was confusing or ambiguous, nor sought a binding ruling regarding this subheading, nor filed a protest. (Tr. 727-735, 820-21, 883-84.) UPS now claims, however, that it did not agree with Customs’s interpretation of 30.90. The company maintains that it did not file a protest because of its "gentlemen’s agreement,” that existed between UPS and Customs whereby UPS orally agreed that it would not file a protest where there was no duty or where the duty was $100 or less. (Tr. 730-33, 735.) 34. Between january 10, 2000 and May 10, 2000, UPS filed 60 entries in the Port of Louisville under 30.90 that formed the subject of several Notices of Action. (Agreed Facts, 'jj 4.) 35. UPS has stipulated that all but 8 of the 45 entries in this lawsuit did not contain a CRT. (L Charts 1 & 2, Lipr_a; Tr. 268.) Following Customs’s withdrawal of evidence pertaining to 3 entries, there remained a factual dispute as to whether the remaining 5 entries (s_ee Chart 2) contained CRTs. Court No. 04-00650 Page 19 36. Customs import Specialist Moosebrugger testified that, based his experience and familiarity with these imported electronic goods, the disputed remaining 5 entries did not contain CRTs. This Court finds Moosebrugger a highly credible witness and along with the documentary evidence, finds, by a preponderance of the evidence, that: a. Entry 582-0157461-2 did not contain a CRT. This entry is for a UP 2030 stencil printer that is used to print solder paste onto printed circuit boards in assemblies when manufacturing them. The UP 2030 printer is neither a part nor accessory of an automated data processing machine, nor does it contain a CRT. (Ex. 16; Tr. 271-75.) b. Entry 582-0188677-6 did not contain a CRT. This entry is for security key swiping equipment which is neither a part nor accessory of an ADP, nor does it contain a CRT. (Ex. 27; Tr. 283-88.) c. Entry 582-0245010-1 did not contain a CRT. This entry is for an industrial computer with a liquid crystal display (”LCD”) unit. An LCD unit does not contain a CRT. This merchandise, while an ADP, is neither a part nor accessory containing a CRT. (Ex. 33; Tr. 289-93.) d. Entry 582-0261334-4 did not contain a CRT. This entry is for an industrial computer with a flat panel LCD display unit, which does not contain a CRT. (Ex. 40; Tr. 293-94.) e. Entry 582-0298398-6 did not contain a CRT. The entry documents vaguely describe the item at issue as a ”computer accessory." However, the entry quantity on the commercial invoice states 80 units, and the unit cost per item is $2.60. The stated cost for this quantity and weight “would not be consistent with normal practices or cost practices” for a CRT. (Ex. 59; Tr. 297-301.] 37. Customs decided that, as customs broker, UPS was responsible for the misclassifications, as opposed to the various importers of record, since UPS had been warned before and subsequently received training with respect to 30.90. (Tr. 886-91.) Court No. 04~00650 Page 20 38. The pre-penalty notices for all eight penalty actions each alleged violations of the responsible supervision and control provision of the broker statute as a result of the erroneous classification of particular entries of merchandise specified in each prepenalty notice. (Exs. 60, 61, 63, 65, 67, 69, 71 and 73; Tr. 960.) 39. Prior to the May 15, 2000 penalty actions, UPS had not been the subject of any penalty action involving an alleged failure to exercise responsible supervision and control in over 15 years of operation as a licensed customs broker. (Tr. 828.) 40. Every entry that comprised penalty case numbers 2000-4196-300221, -300222, -300223, -300319, and -300320, had been filed by UPS between january 10, 2000 and May 10, 2000 at the Port of Louisville, l(entucky. (Agreed Facts, ‘][ 4.) 41. Customs at the Port of Louisville, Kentucky packaged and shipped the entry papers to the Area Port of Cleveland, Ohio for an import specialist review to determine whether the classification employed by UPS was used correctly. Due to what this Court will term ”bureaucratic lag," the Port of Cleveland did not receive these entry papers for nearly 11/& to 2 months following entry of the merchandise, (Tr. 995-97.) 42. Customs’s Import Specialist Team at the Port of Cleveland decided that each time a misclassified entry by UPS was discovered, it would be collected, and when Customs collected five misclassified entries, the entries would be bundled together, and referred to Customs’s Office of Fines, Penalties and Forfeitures (”FP&F"), which then Court No. 04-00650 Page 21 would issue a single administrative penalty notice to UPS.B (Tr. 995-96, 892-93, 901, 940-41, 962-63, 1000-01, 1006.] 43. An FP&F supervisor, along with input from the Import Specialist Team, had devised a plan: for the initial penalties, the penalty notices would be issued at $5,000 each based upon relevant sections of the mitigation guidelines (see generally 19 C.F.R. Pt. 171, App. C.). The recommended penalty amount would then be increased to '$10,000 for subsequent referrals. (Tr. 886-93, 899-907, 1004-05, 1009-10, 1013-14.) 44. Customs’s plan with respect to UPS, described above, as devised and executed was not intended to circumvent the statutory cap of $30,000 for each penalty, per 19 U.s.c. § is»ii(d)(z)(A). (Tr. 1009-1018.) 45. In executing this plan, Customs issued, on May 15, 2000, three pre-penalty notices of $5,000 each, which were each separately based upon five misclassified entries received seriatim, as filed by UPS under 30.90: May 15, 2000 2000-4196-300217 $5.000 Fine paid by UPS [Pre-pena|ty Notioes] 2000-4196-300218 $5.000 Fine paid by UPS September 15, 2000 [pena|ty Notiges] 2000-4196-300219 $5.000 Fine paid by UPS “The broker statute requires that Customs notify a broker prior to enforcing a penalty against it for a violation of the statute. 19 U.S.C. § 1641(d)(2)(A). Court No. 04-00650 Page 22 After considering UPS's pre-penalty response, Customs issued three penalty notices, assessing a $5,000 fine in each penalty action. These fines were paid and are not a part of this action. (Exs. 60, 61 ; Tr. 6-7, 266-67.) 46. On july 11, 2000, Customs initiated three additional $5,000 penalty actions and on August 8, 2000, two $30,000 penalty actions were initiated: 2000-4196-300221 $5.000 Not Paid; Subj'ecl of Amended Jujy 11, 2000 C°"‘P'a‘“* [P"""°"a"’ N°t'°°s] 2000-4196-300222 $5.000 wet Peia; subjeer efAmendea september 20, 2000 C°'"°'a'"' [P°"a'*¥ N°"°°~°'l 2000_4196_300223 $5.000 Net Peid; subject ef Amendee Complaint august a, 2000 200041 913-300310 $30,000 Net Pejd; subject efAmendee [Pre-pena|ty Notioes] Comp|aint october 10, 2000 2000~4106-300320 $30,000 wet Peid; subject er Ameneeu [Pena|ty Notices] CONP|SiI'lT (Exs. 65, 67, 69, 71, 73.) Each $5,000 penalty action was based upon five misclassified entries, as they accumulated, following which each $30,000 penalty case was based on fifteen misclassified entries, as they thereafter accumulated. (Ld.; l Agreed Facts ‘][ 5; PTO, Schedule C’; Charts 1-4, _s_t_ipr_a.) After considering UPS's pre-penalty responses, Customs issued penalty notices dated September 26, 2000 and October 19, 2000, respectively, for a total amount of $75,000 in penalties. (Exs. 66, 68, 70, 72, 74.) 47. UPS failed to remit the $75,000 in penalties imposed by the September 26 and October 19, 2000, penalty notices. On December 17, 2004, Customs commenced this Court No. 04-00650 Page 23 action against UPS seeking to enforce the monetary penalties Customs imposed on UPS. (Amd. Compl. ‘]j‘]l 14, 21, 24, 27, 30, 33.) V. Conclusions of Law“ A. Classification linder HTSUS subheading 8473.30.9000 (”30.90") Because the justification by Customs for the penalties it issued to UPS was that the company continually misclassified merchandise by improperly using subheading 30.90, the first question of law presented by the case is whether UPS, in fact, misclassified merchandise that formed the basis for the challenged penalties by Customs.“ As Customs concedes, if UPS did not rnisclassify the entries at issue then there would be no basis for the penalty claims in this case. (Tr. 960-61.) (L Agreed Facts ‘][ 7; Finding of Facts ‘j[ 37.) Customs’s classification decisions are reviewed through a two-step analysis-first construing the relevant tariff headings, then determining under which of those headings the merchandise at issue is properly classified. Bausch & Lomb Inc. v. United States 148 F.3d 1363, 1365 (Fed. Cir. 1998) ( citing Universal E'.lecs., Inc. v. United “If any of these Conclusions of Law shall more properly be Findings of Fact, they shall be deemed to be so. “"The Court, in classification cases, has an independent obligation to ascertain the proper classification of merchandise in dispute. _S_e;e jarvis Clark Co. v. United States, 733 F.2d 873, 876 (Fed. Cir. 1984); Simon Mktg., Inc. v. United States, 29 CIT _, _, 395 F. Supp. 2d 1280, 1286 (2005). ”[T]he Court must determine ‘whether the govemment's classification is correct, both independently and in comparison with the [broker’s] alternative."' Cargill, Inc. v. United States, 28 CIT 401, 408, 318 F. Supp. 2d 1279, 1287 (2004) (guoting |arvis Clark, 733 F.2d. at 878). Court No. 04-00650 Page 24 1 112 F.3d 488, 491 (Fed. Cir. 1997)). Determining the proper meaning of the relevant tariff headings is a question of law, while application of the terms to the merchandise is a question of fact. I;d. When construing tariff terms, the Court may look to common and commercial meanings if such construction would not contravene legislative intent. |YC Co. of Am. v. United States 234 F.3d 1348, 1352 (Fed. Cir. 2000). To ascertain the common meaning of a tariff terrn, the Court may refer to dictionaries, scientific authorities, and similarly reliable resources. Mead Corp. v. United States, 283 F.3d 1342, 1346 (Fed. Cir. 2002). The Court may also look to the explanatory notes for guidance. Motorola Inc. v. United States 436 F.3d 1357, 1361 (Fed. Cir. 2006) (noting that explanatory notes are “instructive, but not binding"). ”The HTSUS scheme is organized by headings, each of which has one or more subheadings; the headings set forth general categories of merchandise, and the subheadings provide a more particularized segregation of the goods within each category." Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed. Cir. 1998). “A classification analysis begins, as it must, with the language of the headings.” L:L at 1440. In pertinent part, the HTSUS General Rule of interpretation (”GRI") 1 states that ”classification shall be determined according to the terms of the headings and any relative section or chapter notes." GRI 1, HTSUS (2000). In fact, ”Section and Chapter Court No. 04-00650 Page 25 Notes are not optional interpretive rules, but are statutory law, codified at 19 U.S.C. § 1202." Park B. Smith, Ltd. v. United States. 347 F.3d 922, 926 (Fed. Cir. 2003) (citing Libas, Ltd. v. United States, 193 F.3d 1361, 1364 (Fed. Cir. 1999)). The GRIs are applied in numerical order. § ABB Inc. v. United States 421 F.3d 1274, 1276 n.4 (Fed. Cir. 2005) (citing Carl Zeiss, Inc. v. United States, 195 F.3d 1375, 1379 (Fed. Cir. 1999)). To apply GRI 1, the Court must construe ”the language of the heading, and any section or chapter notes in question, to determine whether the product at issue is classifiable under the heading." Orlando Food 140 F.3d at 1440. The Court must identify the proper heading or headings in which an article is classifiable before it can determine the subheading that provides the classification for the item. I;d. As explained below this Court holds as a matter of law that, by operation of GRI 1, for merchandise to be classified under HTSUS subheading 8473.30.9000, the imported article must contain a CRT. This Court grounds its conclusion in the text of the tariff, its organization, and from the plain meaning of the tariff language. §§ Pillowtex Corp. v. United States 171 F.3d 1370, 1373 (Fed. Cir. 1999) (”It is a general rule of statutory construction that where Congress has clearly stated its intent in the language of a statute, a court should not inquire further into the meaning of the statute.") (citation omitted). The Court first looks to the terms of the heading. Heading 8473 covers "[p]arts and accessories" of certain “machines of headings 8469 to 8472,” which are defined Court No. 04-00650 Page 26 elsewhere in the tariff code. HTSUS 8473 (2000). Heading 8469 covers "[t]ypewriters other than printers." HTSUS 8469 (2000). Heading 8470 covers ”[c]alculating machines and pocket-size data recording, reproducing and displaying machines with calculating functions; accounting machines, postage-franking machines, ticket-issuing machines and similar machines, incorporating a calculating device; cash registers." HTSUS 8470 (2000). Heading 8471 covers ”[a]utomatic data processing machines . . . ; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data." HTSUS 8471 (2000). Finally, heading 8472 covers ”[o]ther office machines (for example, hectograph or stencil duplicating machines, addressing machines, automatic banknote dispensers, coin-sorting machines, coin- counting or wrapping machines, pencil-sharpening machines, perforating or stapling machines)." HTSUS 8472 (2000). The scope of heading 8473 as such, is a ”parts and accessories” provision; it does not pertain to the wholly assembled articles. Specifically, heading 8473 pertains to the parts and accessories of typewriters, calculating machines, office machines and computers, but not the computers themselves, as they are classifiable under the more specific tariff heading 8471. This interpretation is supported by the plain language and structure of the tariff schedule for heading 8473. Specific characteristics or qualities of merchandise are described under the tariff schedule label “article description." Court No. 04-00650 Page 27 Subheading 8473.30 is specifically reserved for “[p]arts and accessories of the machines of heading 8471." As stated above, heading 8471 covers ”[a]utomatic data processing machines" (”ADPs")-L, computers.“’ Thus, in order for merchandise to be classified under subheading 8473.30, the item would have to meet three requirements: (i) that the item is a part or accessory (ii) of an ADP, as defined by 8471 and note 5, Chapter 84 HTSUS, and (iii) that the item is either a part or accessory of an ADP. Subheading 8473.30 breaks out further into additional differentiated subcategories: 8473.30 Parts and accessories of the machines of heading 8471: Not incorporating a cathode ray tube: 8473.30.1000 Printed circuit assemblies 8473.30.2000 Parts and accessories, including face plates and lock latches, of printed circuit assemblies 847.30.3000 Other parts for printers, specified in additional U.S. note 2 to this chapter 8473.30.5000 Other _ Other: 8473.30.6000 Other parts for printers, specified in additional U.S. note 2 to this chapter 8473.30.9000 Other The articles described in subheadings 8473.30.1000 through 8473.30.5000 can not contain CR'i"s, as CRTs are explicitly excluded by the language ”[n]ot incorporating a cathode ray tube." “’I-leadmg 8471 is for ”[a]utomatic data processing machines ["ADPs”] and units thereof,~ magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included.” HTSUS 8471 (2000). Court No. 04-00650 Page 28 Conversely, articles described in subheadings 8473.30.6000 and 8473.30.9000-which subheadings fall under the “[o]ther" article description-must contain a CRT. Provisions such as subheadings 8473.30.6000 and 8473.30.9000 are known as “basket" or "residual” provisions. See, e.g., EM Indus. Inc. v. United States 22 CIT 156, 165, 999 I~`. Supp. 1473, 1480 (1998) (“’Basket’ or residual provisions of HTSUS l-Ieadings . . . are intended as a broad catch-all to encompass the classification of articles for which there is no more specifically applicable subheading."). As such, these residual subheadings encompass all “[o]ther” articles that fall within subheading 8473.30, but which are not classifiable under the more specific provision, E, ADP parts incorporating a CRT. Specifically, subheading 8473.30.6000 is reserved for pr'mter parts" that contain a CRT and 8473.30.9000 is reserved for ADP parts that contain a CRT. Customs argues that in order for merchandise to be classified under subheading 8473.30.9000, the items must be: (i) parts or accessories; (ii) of an ADP; (iii) that contain a CRT. Should an article fail to meet any of these perquisites, it could not be classified "Subheadings 8473.30.3000 and 8473.30.6000 are reserved for ”[o]ther parts for printers" that are specified in Additional U.S. note 2 to Chapter 84. Additional note 2, Chapter 84, lists an array of printer parts of ADP machines described in subheading 8471.60. Subheading 8471.60 describes ”[i]nput or output units" of ADP machines, @, stand-alone printers, Subheading 8471.60 breaks out this tariff, in part, by whether it has a CRT or not. Thus, based on the structure and the language of this tariff, the drafters clearly contemplated that there were parts of printers that contained CRTs. Court No. 04-00650 Page 29 under subheading 0473.30.9000. (s><.i 17; Tr. 223-22a 410-11, 414, 427-2a rife rest-Trial Br. 2 ¢jje.) UPS argues that the lirnitation under subheading 8473.30 ”[n]ot incorporating a CRT” only applies to the ADP machine defined under heading 8471, and not the individual part. Therefore, they argue, that the parts and accessories imported under subheadings 8473.30.6000 and 8473.30.9000 need not themselves contain CR'l`s, but merely the assembled whole need contain CRTs. (Exs.117, NN; Tr.415, 427-28; Def.’s Post-Trial Br. 3 ‘][4.) The nub of UPS's textual argument is that under subheading 8473.30, the phrase “[n]ot incorporating a cathode ray tube” immediately follows after the phrase ”machines of heading 8471." Therefore “it is appropriate to read these phrases together, rather than read ‘not incorporating a cathode ray tube’ as modifying ’parts and accessories,' which appears earlier in 8473.30.” (Def.'s Post-Trial Br. 3 ‘][4(a); Tr. 775-781.) UPS's preferred construction of the tariff, however, is in conflict with the plain language, grammar, punctuation, and organization of subheading 8473.30.9000.“’ First, as stated above, key among the factors to consider is that heading 8473 is a 1 provision-the articles described thereunder are parts and accessories of ADP machines, and not the machines themselves. ADP machines are provided for under a “‘In construing tariff terms, ”the court may rely upon its own understanding, dictionaries and other reliable sources." Medline lndus.. Inc. v. United States, 62 F.3d 1407, 1409 (Fed. Cir. 1995) (ci_ting Marubeni Am. Corp. v. United States, 35 F.3d 530 (Fed. Cir. 1994)). Court No. 04-00650 Page 30 different tariff heading: 8471. Therefore, when a characteristic is listed that subdivides articles preliminarily falling into the “parts and accessories" heading, we would expect that the characteristic would refer to the ”part or accessory,” not the machine that the part goes into. Second, UPS is essentially advocating the use of the ”last antecedent rule” to buttress its preferred interpretation. Under the last antecedent rule, ”a lirniting clause or phrase . . . should ordinarily be read as modifying only the noun or phrase that it immediately follows." Barnhart v. Thomas 540 U.S. 20, 26 (2003). I-iowever, to read the tariff text as UPS urges, belies both common sense and grammar.” The main clause of subheading 8473.30 provides: ”Parts and accessories of the machines of heading 8471." immediately following this phrase, on the next line (and indented), is the text ”[n]ot incorporating a cathode ray tube." Returning to the first line of text, the prepositional phrase ”of the machines of heading 8471 [@, ADPs]" modifies ”[p]arts and accessories." The phrase ”[n]ot incorporating a cathode ray tube” cannot be read coherently to modify ”machines of heading 8471 [ADPs]” since it is set off on a separate line and indented. lt is unreasonable to employ the ”last antecedent rule" as UPS advocates because, if the phrase ”[n]ot incorporating a cathode ray tube" were modifying ADP machines, the phrases would not be offset by paragraph structure or separated by punctuation. Customs’s interpretation is therefore more reasonable in mg 2 LAWRENCE ]. BooARo, Customs LAw se AoMrNIsrRAnoN § 32.5, at ‘][ 211 (3d ed. 2007) (”The grammatical rule of construction that a qualifying clause modifies only its immediate antecedent has been held inapplicable where such a construction would not be reasonable or in accord with legislative intent."). Court No. 04-00650 Page 31 light of the plain language and structure of the text. Finally, Congress drafted subheading 8473.30.9000 employing the use of colons.z° Under subheading 8473.30.9000, the colon introduces the categorical list of the ADP parts classifiable under it according to whether those parts and accessories either incorporate a CRT (L,§g, HTSUS 8473.30.6000) or do not incorporate a CRT (Ye;,g;gl HTSUS 8473.30.1000). g Bruckman v. United States, 435 F. Supp. 1219, 1222 (Cust. Ct. 1977) (”The colon of the superior heading clearly represents, through punctuation, an attempt to show that each provision under it is intended to be a specific elaboration of the superior headiiig."), rev'd. on other grounds, 582 F.2d 622 (C.C.P.A. 1978). The interpretation advocated by UPS makes no sense grammatically and would render the punctuation here useless.” As such, UPS's construction is untenable. Therefore, this Court holds that, as a matter of law, for articles to be properly classifiable under subheading 8473.30.9000 the articles must: (i) be parts or accessories; (ii) of an ADP machine; and (iii) those parts or accessories must incorporate a CRT. 2°__5@ THE CHICAGO MANUAL OF STYLE 'j[ 6.63 (15th ed. 2003) ("A colon introduces an element or a series of elements illustrating or amplifying what has preceded the colon."). ”The Court presumes all statutory language serves a purpose, se__e Bailey v. United States 516 U.S. 137, 145 (1995) (”'judges should hesitate . . . to treat [as surplusage] statutory terms in any setting. . . ."’) (bracl