Sea-Land Service, Inc. v. United States

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.”).