Petition for Writ of Certiorari — SL Service, Inc. v. United States

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No.__ 001696 May - 9 2001

IN THE OFFICE OF THE CLERK

Supreme Court of the Anited States

SL SERVICE, INC.

and

AMERICAN SHIP MANAGEMENT, LLC,

Petitioners,

Vv.

UNITED STATES,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

EVELYN M. SUAREZ

Counsel of Record

SONNENSCHEIN NATH &

ROSENTHAL

1301 K Street, NW

Suite 600, East Tower

Washington, DC 20005

CHARLES ROUTH (202) 408-6430

GARVEY, SCHUBERT & BARER ROBERT S. ZUCKERMAN

Second & Seneca Building SL SERVICE, INC.

18th Floor 2101 Rexford Road

1191 Second Avenue Suite 350 West

Seattle, WA 98101 Charlotte, NC 28211

(206) 464-3939 (704) 973-7012

Counsel to American Ship Counsel to SL Service, Inc.

Management, LLC

May 9, 2001

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 —- WASHINGTON, D. C. 20001

QUESTIONS PRESENTED

1. Whether the United States Court of Appeals for the

Federal Circuit violated basic principles of jurisprudence by

improperly overextending the holding of Texaco Marine

Service, Inc. v. United States, 239 F.3d 1366 (Fed. Cir. 2001)

that two foreign shipyard expenses, i.e., post-repair cleaning

and protective coverings used in conjunction of repair work,

constituted dutiable repair expenses under 19 U.S.C.

§ 1466(a), to render all foreign shipyard expenses per se

dutiable?

2. Whether the misapplication of Texaco Marine Service,

Inc. v. United States, by the United States Court of Appeals

for the Federal Circuit led the court to misinterpret a key

provision of the Customs Modernization Act, 19 U.S.C.

§ 1625(c), by concluding that Customs did not render

“decisions” interpreting the vessel repair statute, 19 U.S.C.

§ 1466(a), which would trigger the mandatory notice and

comment requirements of 19 U.S.C. § 1625(c) prior to

modifying or revoking prior interpretive rulings or decisions

relating to the dutiability of a myriad of shipyard expenses?

3. Whether the United States Court of Appeals for the

Federal Circuit erred in failing to recognize Customs’

“decisions” in this case in view of United States v. The Mead

Corp., 185 F.3d 1304 (1999), cert granted, 530 U.S. 1202

(2000), where the Government seeks controlling weight

deference for the same type of decision?

RULE 29.6 LISTING

SL Service, Inc., formerly known as Sea-Land Service, Inc.

is a wholly-owned subsidiary of CSX Corporation. American

Ship Management, LLC, formerly known as American

President Lines, Ltd., is wholly-owned by Patriot Holdings,

La.

PARTIES TO THE PROCEEDING

The only parties currently before the Court are the United

States, SL Service, Inc., and American Ship Management,

LLC.

Petitioners’ case was designated a “test case” by the U.S.

Court of International Trade (“CIT”’).

TABLE OF CONTENTS

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RULE 29.6 LISTING AND PARTIES TO THE

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1. THE FEDERAL CIRCUIT’S DECISION IS

AT ODDS WITH BASIC PRINCIPLES OF

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ll. THE FEDERAL CIRCUIT'S DECISION

PRESENTS AN IMPORTANT ISSUE OF

CONSTRUCTION WITH REGARD TO THE

ADMINISTRATION OF THE CUSTOMS

MODERNIZATION ACT, 19 U.S.C.

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Ill. THE GOVERNMENT'S POSITION, AC-

CEPTED BY THE FEDERAL CIRCUIT, IS

INCONSISTENT WITH THE GOVERN-

MENT’S POSITION IN TWO OTHER

CASES ACCEPTED BY THIS COURT............

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TABLE OF AUTHORITIES

CASES: Page

American Bayridge Corp. v. United States, 35 F.

Supp.2d 922 (Ct. Int’] Trade 1998), rev'd on

other grounds, Slip Op. 99-1228, available on

1999 WL 997303 (Fed. Cir.- 1999)

(CURRIE) once ccesiccscesscssnnncassosnscsosnseaianeenanenane passim

Chevron U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984) ..13, 15, 16

Sea-Land Service, Inc. v. United States, 69 F.

Supp.2d 1371 (Ct. Int’l Trade 1999), aff'd, 239

38 1SGG GG. Cie. DIE Panccccccnsscsssscnssenecsnctenes passim

Texaco Marine Services, Inc. v. United States, 44

38 1559 CE, Cie. BGG) cccccasccencecniontitnnciencsanes passim

United States v. Haggar Apparel Co., 526 US.

SCD ncesenanrcicinntenniiccntniaitinintapeninciecinsnibataianiti 14, 15

United States v. The Mead Corp., 185 F.3d 1304

(1999), cert granted, 530 U.S. 1202 (2000) ...... 14, 16

STATUTES AND REGULATIONS:

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LEGISLATIVE HISTORY

H.R. Rep. No. 103-361, Ist Sess. (1993).........00+. 3, 12-13

OTHER AUTHORITY:

Headquarters Ruling Memorandum 113308, 29

Cust. B. & Dec. 59 (February 8, 1995) .............. 4

Headquarters Ruling Memorandum 113350, 29

Cust. B. & Dec. 24 (April 5, 1995) ..........seeseeees 4

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IN THE

Supreme Court of the United States

No.

SL SERVICE, INC.

and

AMERICAN SHIP MANAGEMENT, LLC,

Petitioners,

Vv.

UNITED STATES, -

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

SL Service, Inc. (formerly known as Sea-Land Service,

Inc.) and American Ship Management, LLC (formerly known

as American President Lines, Ltd.), petition for a Writ of

Certiorari to review a judgment of the United States Court of

Appeals for the Federal Circuit (“Federal Circuit”) entered on

February 16, 2001.

OPINIONS BELOW

The United States Court of International Trade entered a

final judgment on September 23, 1999, and the court’s

decision is reported as Sea-Land Service, Inc. v. United

States, 69 F. Supp.2d 1371 (Ct. Int’! Trade 1999) (App. B,

infra). The United States Court of Appeals for the Federal

Circuit affirmed that decision in its opinion, reported at 239

F.3d 1366 (Fed. Cir. 2001) (App. A, infra).

JURISDICTION

The judgment of the United States Court of Appeals for the

Federal Circuit was entered on February 16, 2001. The time

for filing a petition for a Writ of Certiorari is until May 17,

2001. The jurisdiction of this Court is invoked under 28

U.S.C. § 1254.

STATUTORY PROVISIONS INVOLVED

1. 19 U.S.C. § 1625(c) provides:

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.

2. 19 U.S.C. § 1466(a) provides, in pertinent 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.

STATEMENT OF THE CASE

The case concerns whether the United States Court of

Appeals for the Federal Circuit erred by failing to require the

U.S. Customs Service to comply with the mandatory notice

and comment requirements of 19 U.S.C. § 1625(c). The

Statutory provision at issue was enacted as part of an overhaul

of U.S. Customs laws, passed as part of the North American

Free Trade Implementation Act on December 8, 1993, and is

commonly referred to as the “Customs Modernization Act.”

Pub. L. 103-182 § 623 (1993). It substantially amended

section 625 of the Tariff Act of 1930 to “require that a ruling

modifying or revoking an existing ruling be first published in

the Customs Bulletin for notice and comment” in order to

“provide the assurances of transparency conceming Customs

rulings and policy directives through publication in the

Customs Bulletin.” H.R. Rep. No. 103-361, Ist Sess. at 124

(1993).: As noted by the U.S. Court of International Trade,

the statute is clear on its face that the notice and comment

requirements are mandatory. American Bayridge Corp. v.

United States, 35 F. Supp.2d 922 (Ct. Int’! Trade 1998), rev'd

on other grounds, Slip Op. 99-1228, available on 1999 WL

997303 (Fed. Cir. 1999)(unpublished).

This case relates to another case decided by the Federal

Circuit, Texaco Marine Services, Inc. y. United States,

(“Texaco”), 44 F.3d 1539 (Fed. Cir. 1994), where the court

decided that two repair charges incurred in a foreign shipyard

to a U.S.-flag vessel, such as those operated by petitioners,

constituted dutiable “expenses of repairs” under the vessel

repair statute, 19 U.S.C. § 1466(a). The court, upon ruling on

the specific items, construed the vessel repair statute

generally to decide whether a particular charge should be

considered dutiable as an “expense of repair.” In particular,

the court recited the following, which has become known as

the “but for” test:

[T]he language “expenses of repairs” is broad and

unqualified. As such, we interpret “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.

44 F.3d at 1544 (emphasis added).

Subsequent to the issuance of the Federal Circuit decision

in Texaco the Customs Service published notice in the

Customs Bulletin on February 8, 1995 (HQ memorandum

113308, 29 Cust. B. & Dec. 59), providing the Texaco

decision and explaining that Customs would follow the

Texaco “but for” analysis. Specifically, Customs indicated

that it would impose duties on “expenses of repairs” provided

they pass the “but for” test for all unliquidated entries.

Representatives of petitioners met with Customs officials on

February 22, 1995, to discuss the ramifications of the Texaco

decision, and Headquarters Ruling Memorandum (“HQ

Memorandum”) 113308, as well as the applicability of the

newly enacted statutory provision, 19 U.S.C. § 1625(c), to

new interpretations of the statute to charges not specifically

considered in Texaco. On March 3, 1995, Customs issued

HQ memorandum 113350 (published in the Customs Bulletin

on April 5, 1995 (29 Cust. B. & Dec. 24)), amending its

position on the effective dates set forth in the first notice.

Specifically Customs instructed its field offices that all entries

involving the two cost items at issue in Texaco should be

liquidated as dutiable and for other charges that would

involve a question of interpretation of the statute Customs

should apply the “but for” test for all entries filed after the

date of the Texaco decision, i.e., December 29, 1994. Sea-

Land, 239 F.3d at 1369.

Petitioners SL Service, Inc. (“Sea-Land”) and American

Ship Management, LLC (“ASM”), filed vessel repair entries,

containing various charges other than post-repair cleaning or

protective coverings used in conjunction with repair work,

and Customs assessed duties, applying the “but for” test

which had the effect of modifying or revoking prior Customs

rulings. Sea-Land and ASM filed administrative protests

pursuant to 19 U.S.C. § 1514, urging Customs to comply with

§ 1625(c) before modifying or revoking rulings covering such

charges. However, Customs denied Sea-Land and ASM’s

protests and refused to publish notice and allow for comment

as required by 19 U.S.C. § 1625(c). Sea-Land and ASM filed

separate actions before the U.S. Court of International Trade,

which has exclusive jurisdiction to consider challenges to

protest denials under 28 U.S.C. § 1581(a). 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). It was stipulated that none of the duties

under protest involved post-repair cleaning and protective

coverings, the charges involved in Texaco. Sea-Land, 239

F.3d at 1370. The test case involved a variety of charges such

as transportation and travel. On July 7, 1998, Sea-Land and

ASM jointly moved for summary judgment to review the

correctness of Customs’ refusal to provide notice and allow

comment. On December 7, 1998, Defendant United States

cross-moved for summary judgment.

The U.S. Court of International Trade granted Defendant’s

cross-motion for summary judgment, holding that § 1625(c)

was not applicable because “Customs did not issue a

proposed interpretive ruling or decision within the meaning of

19 U.S.C. § 1625(c).” Specifically, the court concluded that

the decisions referred to by plaintiffs “were not proposed

interpretive rulings or decisions; instead, such decisions and

memoranda merely implemented the judicial mandate of

Texaco.” Sea-Land, 69 F. Supp.2d at 1381. Thus, the court

declined to rule that the Customs Service had made

“decisions” that would trigger the notice and comment

provision.

On February 16, 2001, the U.S. Court of Appeals affirmed

the decision of the U.S. Court of International Trade. Unlike

the Court of International Trade, which ruled that Customs

did not make any decisions, the court avoided the question of

whether Customs rendered any “interpretive rulings” or

“decisions” at all. Rather, the court stated that it would

“assume, without deciding, . . . that Customs’ actions with

respect to Sea-Land’s vessel repair expense entries are

‘interpretive rulings[s] or decision[s]’ under § 1625(c).” Sea-

Land, 239 F.3d at 1372. According to the court, this would

meet the first requirement for the invocation of the notice and

comment statute. However, it based its decision to affirm the

decision of the Court of International Trade upon its

conclusion that “[t]his court’s 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 Customs’ actions do not meet the second

condition under section 1625(c), the notice and comment

requirements described in § 1625(c) were not triggered.” Jd.

The Federal Circuit explained that:

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 ship’s 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.

Sea-Land, 239 F.3d at 1372-1373.

Petitioners respectfully suggest that the Federal Circuit

erred when it refused to address the question of whether

Customs made any “decisions” that would trigger section

1625(c). It also erred in finding that its decision in Texaco

“wiped the slate of decisions under section 1466(a) clean”

requiring Customs to follow the “but for’ test. Such a

decision is unprecedented in that it gives the Texaco decision

the effect of wiping out an entire body of administrative law

and further gives Customs carte blanche to interpret the

statute without being subject to the administrative process for

review provided by Congress.

REASONS FOR GRANTING THE PETITION

This petition for a Writ of Certiorari should be granted for

the following reasons:

I. THE FEDERAL CIRCUIT’S DECISION IS AT

ODDS WITH BASIC PRINCIPLES OF

JURISPRUDENCE

The fundamental flaw in the Federal Circuit’s decision

relates to its assumption that by rendering its decision in

Texaco Marine Services, Inc. and Texaco Refining and

Marketing, Inc. v. United States, (“Texaco”), 815 F. Supp.

1484 (Ct. Int’l Trade 1993) the court, and not Customs,

modified the treatment of all vessel expenses under § 1466(a).

The court takes this view because, as it states: “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.” Sea-Land, 239 F.3d at 1372. That

decision is at odds with basic principles of jurisprudence,

because the Texaco decision could not “wipe the slate of

decisions under § 1466(a) clean,” as ruled by the Federal

Circuit here. Courts decide cases by applying the law to

specific facts. Texaco decided the correctness of Customs’

determination of the dutiability of two specific charges, i.e.,

post-repair cleaning and protective coverings used in

conjunction of dutiable repairs, under the vessel repair statute.

It did not direct the Customs Service as to the necessary

outcome of every fact pattern it would encounter in

liquidating vessel repair entries; nor did it make the charges at

issue in this case per se dutiable. The Texaco court did,

however, provide guidance as to how Customs should

interpret the vessel repair statute to determine whether a

particular charge is a dutiable “expense of repair.” |

Petitioners do not contest the applicability of the “but for”

analysis for purposes for determining whether a particular

expense is a dutiable “expense of repairs” under the vessel

repair statute. Texaco itself dealt with the application of the

“but for” test to two types of vessel repair expenses—

cleaning and protective coverings costs. However, under

principles of stare decisis the precedential weight of Texaco

is limited. Contrary to its decision below, the Federal

Circuit’s determination that the expenses before it in Texaco

were dutiable in no way mandates a similar finding regarding

the charges at issue in the instant case. Rather, the Customs

Service was required to apply the “but for” test to analyze

whether particular charges under particular circumstances

constitute dutiable “expenses of repairs.” Thus, it was

Customs that made decisions or rulings when it issued protest

denials, denials of applications for further review, and protest

review decisions that modified or revoked prior contrary

Customs rulings as to the various charges. This is the

fundamental error made by the court which sanctions the

Customs Service’s failure to comply with § 1625(c).

A review of the Texaco decision itself is necessary in order

to comprehend the limits of that decision and to fully

understand the error made by the Federal Circuit in

overextending the decision to violate basic principles of

jurisprudence. Texaco involved an American-flag oil carrier,

the S.S. TEXACO GEORGIA, which underwent certain repairs

and alterations at the Hellenic Shipyards Co. in Athens,

Greece. The issue presented involved whether two Categories

of charges: (1) post-repair cleaning and (2) protective

coverings, fell within the phrase “expenses of repairs”

contained in the vessel repair statute, 19 U.S.C. § 1466(a).

Under that statute, if the charges constituted “expenses of

repairs” they are subject to a 50 percent ad valorem duty. —

The expenses at issue in Texaco were for cleaning up after

repair work to the boiler, boiler room and the cargo tanks and

for coverings to protect heating coils during grit-blasting.

Texaco challenged Customs’ assessment of duty to the

post-repair cleaning and protective covering expenses in the

U.S. Court of International Trade. The court held that those

expenses were dutiable, reasoning:

As a general rule, if the cleaning procedures “are

incident to or accompany repairs, they will be held

dutiable; if conducted without regard to repairs, they are

not dutiable.” Furthermore, if the cleaning operations

were an “integral” or a “necessary” part of the dutiable

repairs, then the cleaning is also dutiable.

The cleaning in this case was indeed an integral part of

the repair process since the cleaning would not have

been necessary but for the repairs. Therefore, the

cleaning costs are properly dutiable under the statute and

this Court denies plaintiffs’ motion and grants

defendant’s cross-motion for summary judgment as to

this issue.

*x* * *

The protective coverings, however, are an integral part

of the repair process and would not have been necessary

but for the repairs. Therefore, by the same reasoning

that the cost of the cleaning is dutiable, the cost for the

protective coverings are dutiable as they are an integral

part of the repair process.

Texaco, 815 F. Supp. at 1486 (citations omitted)(emphasis

added).

The Federal Circuit approved the “but for” test, stating the

following as its rationale:

[T]he language “expenses of repairs” is broad and

unqualified. As such, we interpret “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.

Texaco, 44 F.3d at 1544 (emphasis added).

Thus, the Federal Circuit decision made no determination

with regard to the dutiability of the particular expenses at

issue in this case. To the extent that other expenses, such as

dry-docking, lighting, transportation and travel, were

discussed in Texaco, they were discussed in the context of

previous cases to illustrate a point or further demonstrate the

validity of the court’s newly enunciated “but for” test for

interpreting the statute. Thus, as the Federal Circuit

“assumed,” Customs would have to make decisions by

applying the “but for” test in the future. The court’s

conclusion that it was the court’s decision in Texaco, and not

Customs’ decisions, that affected prior practice cannot

withstand the test of logic or basic principles of

jurisprudence. Texaco disposed of the dutiability of two

charges in the specific context of the Texaco case. For these

charges, Texaco mandated the outcome; for other charges the

court directed Customs to interpret the statute and apply the

“but for” test. Customs, in applying the “but for” test in a

way which was contrary to its prior rulings, and not the

Federal Circuit, modified or revoked prior rulings here.

There is no dispute that Customs did this without meeting the

mandatory requirements of section 1625(c). As a result, its

actions here were done without the public transparency and

scrutiny envisioned by Congress. The court’s approval of

Customs’ actions here will impede the administration of an

important new statute.

ee ee

Il. THE FEDERAL CIRCUIT’S DECISION

PRESENTS AN IMPORTANT ISSUE OF

CONSTRUCTION WITH REGARD TO THE

ADMINISTRATION OF THE CUSTOMS

MODERNIZATION ACT (19 U.S.C. § 1625(C))

The Federal Circuit’s decision presents a critical issue with

regard to the administration of a relatively new statutory

provision, 19 U.S.C. § 1625(c), which is an essential

component of the Customs Modernization legislation passed

in 1993 as part of the North American Free Trade

Implementation Act. American Bayridge, 35 F. Supp.2d at

935-941. Specifically, this decision allows Customs to avoid

the mandatory notice and comment requirements for

modifying or revoking existing rulings, thereby upsetting the

Statutory framework for the issuance of Customs rulings.

Because the court’s interpretation disturbs the Congression-

ally-mandated process for changing prior interpretations or

decisions, it will inevitably lead to more litigation rather than

resolution via the administrative process established by

Congress. In fact, that is exactly what occurred in this case.

Allowing Customs to proceed in this manner gives the agency

unbridled discretion to modify or revoke its prior interpreta-

tions. As such, the court’s decision presents a serious

hindrance to the administration of the Customs laws, as

amended by Congress in the Customs Modernization Act.

Early correction of the Federal Circuit’s interpretation is

required to ensure that the statute is properly implemented by

the Customs Service. It is especially important as the impact

of the decision affects all parties, not only U.S.-flag ocean

carriers, subject to the administration of U.S. Customs laws

and. affected by Customs’ “interpretive rulings” or

“decisions.”

The Customs Modernization Act (the “Mod Act”), which

became effective December 8, 1993, about a year before the

Federal Circuit’s decision in Texaco, established additional

requirements for Customs in implementing new interpretive

rulings or decisions. Specifically, 19 U.S.C. § 1625 (c)

provides 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.

Prior to enactment of the Mod Act in 1993, there was no

statutory requirement for Customs to consider public

comment before issuing rulings that would modify or revoke

earlier rulings.’ The legislative history of the Mod Act states

that the statutory amendment was designed to “require that a

ruling modifying or revoking an existing ruling be first

published in the Customs Bulletin for notice and comment”

and that such new procedural safeguards were enacted to

“provide the assurances of transparency concerning Customs

' However, where there is an established and uniform practice of a

lower duty or no duty, Customs was, and still is, required to provide

notice in the Federal Register under 19 U.S.C. § 1315(d) prior to

imposing a higher rate of duty.

rulings and policy directives through publication in the

Customs Bulletin.” H.R. Rep. No. 103-361, Ist Sess. at 124

(1993).

The Court of International Trade, in American Bayridge

Corp. v. United States, found that under the analysis set forth

in Chevron U.SA., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984), the statutory language of

section 1625(c) in itself would suffice to establish that the

notice and comment requirements are mandatory as Congress

made its will absolutely clear. As discussed herein, Customs

made “decisions” as to the dutiability of the various charges

under the vessel repair statute. Whether these “decisions” are

consistent with the vessel repair statute or Texaco remains

untested because of Customs’ refusal to comply with the

mandatory notice and comment requirement. Moreover, the

court has allowed Customs the ability to escape public

scrutiny, as envisioned by Congress, by its erroneous

determination that it was the court in Texaco and not Customs

that dictated the duty assessments. American Bayridge, 35 F.

Supp.2d at 935, also held that the statute gives not only the

parties directly involved in the ruling or decision rights but it

gives “interested parties an opportunity to submit .. .

comments on the correctness of the proposed ruling or

decision.” The inconsistency between these Federal Circuit

decisions constitutes another reason why this Court should

review this case.

Early correction of the court’s interpretation regarding the

applicability of section 1625(c) is required to ensure that the

statute is properly implemented by the Customs Service. The

notice and comment requirement is an important component

of the 1993 Customs Modernization Act as it is provides the

necessary transparency for the trade community, which

includes among others importing companies, transportation

companies, brokerage firms, to take on greater responsibility

in Customs matters in order to enable Customs to automate

and facilitate trade. American Bayridge Corp. v. United

States, 35 F. Supp.2d at 938-939. Customs’ failure to publish

has led to this prolonged litigation to resolve the propriety of

Customs underlying actions which remain unreviewed by the

agency or any court to this day and which could have been

avoided by compliance with the statutory scheme devised by

Congress.

Ill. THE FEDERAL CIRCUIT’S DECISION

ADOPTING THE GOVERNMENT’S POSITION

IS INCONSISTENT WITH THE GOVERN-

MENT’S POSITION IN TWO OTHER CASES

ACCEPTED BY THIS COURT

The Federal Circuit’s decision is also at odds with the

position that the Government has taken in two previous cases

accepted by this Court, United States v. Haggar Apparel Co.,

526 U.S. 380 (1999), and United States v. The Mead

Corporation, 185 F.3d 1304 (1999), cert. granted, 530 U.S.

1202 (2000). In each of those cases, the Government has

sought a deferential standard of review for its decisions. In

the first case, it sought deference for its duly promulgated

regulations, and in the second instance it seeks deference for

an administrative ruling. In Haggar, this Court ruled that

deference should be accorded the agency for duly

promulgated regulations. Haggar, 526 U.S. at 390. Mead is

awaiting a decision by this Court.

In the instant case, the Government has obtained the

court’s approval that its decisions are of no consequence and

as a result has escaped any accountability for its interpretive

decisions. Thus, this case also presents the question of the

weight to be accorded an interpretive ruling. The

Government cannot “have it both ways.” It should not be

allowed to escape responsibility for its decisions in order to

avoid legislatively mandated public scrutiny by required

notice and comment while simultaneously demanding that

substantial judicial deference be accorded the very same type

of decision. By seeking deference for its rulings from the

courts while simultaneously seeking to avoid accountability

for its interpretive rulings to escape the transparency and

concomitant scrutiny envisioned by Congress under

§ 1625(c), the Government would have this Court eviscerate

the procedural safeguards designed to protect against the type

of arbitrary actions at issue in these cases. Petitioner was

denied not only administrative consideration of the propriety

of its duty assessment but also judicial consideration as the

reviewing courts concluded that the notice and comment

requirements were not triggered but failed to consider

whether the duty assessments were proper. Clearly, this was

not what was intended by Congress.

In Haggar, this Court considered the question of whether

force of law Customs regulations are entitled to judicial

deference in a refund suit brought in the Court of

International Trade. Haggar, 526 U.S. at 383. Disagreeing

with the Court of International Trade and the Federal Circuit,

this Court held that the regulation in question was subject to

the analysis required in Chevron. Specifically, this Court

summarized the analysis to be undertaken as follows:

Under Chevron, if a court determines that “Congress has

directly spoken to the precise question at issue,” then

“that is the end of the matter; for the court, as well as the

agency, must give effect to the unambiguously expressed

intent of Congress.” If, however, the agency’s statutory

interpretation “fills a gap or defines a term in a way that

is reasonable in light of the legislature’s revealed design,

we give [that] judgment ‘controlling weight.’”

Haggar, 526 U.S. at 392 (citation omitted).

This Court concluded that regulations promulgated

pursuant to a notice and comment process were entitled to

judicial deference.

Subsequently, this Court granted certiorari to a petition

filed by the Solicitor General in Mead, to review the question

of whether the courts must accord Chevron controlling-

weight deference to ordinary Customs classification rulings.

530 U.S. 1202 (2000).

In this case for which petitioner seeks review, the

Government attempts to escape any responsibility for the

same types of decisions as involved in Mead. In both cases,

Customs issued protest review decisions. However, in Mead

the Government seeks defe: ice for Customs’ decisions and

here the Government claims that Customs’ decision should be

ignored. Its position is a blatant attempt to escape the

mandatory public scrutiny required by 19 U.S.C. § 1625(c) by

claiming it does not make “decisions.” The Court of

International Trade erroneously concluded that Customs did

not make decisions that would trigger section 1625(c) and the

Federal Circuit improperly avoided the question entirely. As

a result, the Federal Circuit has allowed the Customs Service

to avoid its statutory responsibility by failing to address the

question of whether Customs made “decisions” with regard to

the duty assessments for the vessel repair entries in question

and erroneously overextending the Texaco decision by

holding that the case wiped the “slate clean” and thereby

short-circuiting an entire body of law. These flaws in the

Federal Circuit’s decision have enabled the Government to

take a position that is at odds with the position that it now

takes before this Court in Mead. Petitioners submitting that

the Government’s position here is designed to circumvent the

Statutory requirements of section 1625(c) and to escape the

Congressionally mandated scrutiny acknowledged by the

Court of International Trade in American Bayridge. 35 F.

Supp.2d at 936. This is impermissible and constitutes

additional grounds for this Court's review.

CONCLUSION

For the reasons set forth herein, this petition for a writ of

certiorari should be granted.

CHARLES ROUTH

GARVEY, SCHUBERT & BARER

Second & Seneca Building

18th Floor

1191 Second Avenue

Seattle, WA 98101

(206) 464-3939

Counsel to American Ship

Management, LLC

May 9, 2001

Respectfully submitted,

EVELYN M. SUAREZ

Counsel of Record

SONNENSCHEIN NATH &

ROSENTHAL

1301 K Street, NW

Suite 600, East Tower

Washington, DC 20005

(202) 408-6430

ROBERT S. ZUCKERMAN

SL SERVICE, INC.

2101 Rexford Road

Suite 350 West

Charlotte, NC 28211

(704) 973-7012

Counsel to SL Service, Inc.

LA0% peso AS

APPENDICES

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APPENDIX A. -

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,

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 Washing-

ton, 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),

Plaintiff-Appellant,

UNITED STATES,

Defendant-Appellee.

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 vessel's 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

' All statutory references are to the 1994 version of the United States

Code, as modified by Supplement IV of 1998.

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 Customs’ 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-Land’s

motion, but granted that of the United States, concluding that

Customs’ 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. Int’] Trade 1999).

We affirm.

BACKGROUND

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 ‘expenses of repairs’ 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. /d. at 1540-41.

In Texaco, we were asked to review a Court of Inter-

national Trade decision affirming Customs’ 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 Trade’s

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).

Il.

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 Customs’ New Orleans

Regional Director. The HQ memorandum was later pub-

lished 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 Customs’ 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, “undoubt-

edly constitute dutiable ‘expenses of repairs’ under the ‘but

for’ 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 ‘expenses of repairs’

provided they pass the ‘but for’ 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 memo-

randum 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-Land’s

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 Customs’ 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).

Il.

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-Land’s protests. Jd. In addition, the parties

agreed that none of the duties under protest involved cleaning

? Customs also published the full text of the Texaco decision.

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.” /d.

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. /d at 1376. The Court of

International Trade rejected this argument, concluding that

Customs had conducted “ta case-by-case ‘but for’ analysis for

each expense at issue.” /d. The court cited HQ memorandum

113308’s instruction to evaluate each vessel repair entry

under the “but for” standard as support for its conclusion. /d.

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. /d. at 1377. Sea-Land asserted that Customs’

decision on its expenses changed various EUP’s and that,

consequently, Customs was required to comply with the

notice requirement of 19 U.S.C. § 1315(d)* before any duties

* The term “EUP” is used to describe a classification and liquidation of

a particular good by Customs that is both established and uniform. In

previous cases, this court has looked for “evidence of uniform

classification and liquidation of merchandise at various ports over an

extended period of time” to establish an EUP. Heraeus-Amersil, Inc. v.

United States, 795 F.2d 1575, 1581 (Fed. Cir. 1986).

“Section 1315(d) prohibits an “administrative ruling that results in the

imposition of a higher rate of duty or charge than . . . [has] been applicable

to imported merchandise under an established and uniform practice” from

being effective until 30 days after publication of the ruling in the Federal

States, 72 F.3d 868, 870 (Fed. Cir. 1995) (noting that § 1315(d) “on its

could be assessed. /d. at 1377-78. Addressing this conten-

tion, the Court of International Trade reasoned that the notice

requirement of 19 U.S.C. § 1315(d) did not apply because it

was this court’s holding in Texaco, not an “administrative

ruling” as required by § 1315(d), that impacted the

assessment of duties on Sea-Land’s vessel repair expenses.

Id. at 1379-80. The court therefore rejected Sea-Land’s

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). Jd. at 1380. The

Court of International Trade concluded, however, that this

court’s 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. /d. 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 court’s 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. Jd. Having rejected all of Sea-

Land’s arguments, the court granted summary judgment in

favor of the government.

Sea-Land appeals the Court of International Trade’s

decision. We have jurisdiction over the appeal pursuant to 28

U.S.C. § 1295(a)(5).

face bars the levy and collection of increases in duties when an established

and uniform practice exists taxing the particular imported goods at a lower

rate, unless the higher rate has been fixed by an administrative ruling,

notice of which has been given”).

PEAS AB Re CMI AE Se ORR eel PROTA te EO BL MLS RIAD ee

”

10a

DISCUSSION

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. Int’l 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 Customs’ application of the “but for” test under

§ 1466(a) to its vessel repair expense entries or the Court of

International Trade’s 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 experises at issue

were dutiable under 19 U.S.C. § 1466(a).

As it did in the Court of International Trade, Sea-Land

argues that Customs’ determination that certain vessel repair

expenses were dutiable expenses under § 1466(a) and its

denial of Sea-Land’s 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 Customs’ 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-Land’s vessel repair expense entries. Sea-

* As noted above, Sea-Land and the government stipulated to the

pertinent facts for purposes of their summary judgment motions.

lla

Land argues that Texaco did not revoke Customs’ 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

Customs’ 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 Customs’

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-Land’s vessel repair

expense entries.

For the reasons that follow, we reject Sea-Land’s

arguments and conclude that Customs’ actions in this case did

not trigger the notice and comment requirements of 19 U.S.C.

§ 1625(c).

Il.

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

12a

(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 Secre-

tary 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. /d. Second, the proposed interpretive ruling or

decision must either modify or revoke a prior ruling or

decision or have the effect of modifying Customs’ previous

treatment of “substantially identical transactions.” /d. Sec-

tion 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. /d. The statute instructs Customs to consider the

comments it receives. Jd. Section 1625(c) then provides that

the final ruling or decision will become effective 60 days after

its publication. /d.

Ii.

For purposes of this appeal, we will assume, without

deciding, that the first requirement of § 1625(c) is met—that

Customs’ actions with respect to Sea-Land’s vessel repair

expense entries are “interpretative ruling[s] or decision[s]”

under § 1625(c). Sea-Land’s argument fails, however,

because the second requirement of § 1625(c) is not met. The

reason is that Customs’ “interpretative ruling[s] or

13a

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 Customs’ actions in this

case, this court’s 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 Customs’ 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 ship’s 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 Customs’ earlier

treatment of vessel repair expenses under § 1466(a),

Customs’ actions after Texaco cannot be recognized as

rulings or decisions that revoke or modify Customs’ earlier

decisions under § 1466(a). Furthermore, Customs, required

l4a

to act under this court’s 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. How-

ever, 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 Customs’ 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-

Land’s 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,

Customs’ decisions cannot be considered to be modifications

of Customs’ 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 Customs’

decisions regarding each of Sea-Land’s expenses, modified

Customs’ 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 statute’s purpose is to provide “assurances of transparency

concerning Customs rulings and policy directives through

publication” of Customs’ 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)’s notice and comment requirements

are intended to ensure that the interested public has notice of

a proposed change in Customs’ policy and to allow the public

15a

to make comments on the appropriateness of the change and

to modify any current practices that. were based in reliance on

Customs’ 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 Customs’ later

actions in this case, that changed Customs’ 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 court’s decision in Texaco.

Furthermore, although Customs’ 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

Customs’ actions under these circumstances are not helpful

because Customs is merely implementing this court’s

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 Customs’ 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).

l6a

CONCLUSION

For the foregoing reasons, the decision of the Court of

International Trade is

AFFIRMED.

Each party shall bear its own costs.

17a

APPENDIX B

UNITED STATES COURT OF INTERNATIONAL TRADE

Consol. Court No. 96-02-00398

Slip Op. 99-100

SEA-LAND SERVICE, INC.;

AMERICAN PRESIDENT LINES, LTD.,

Plaintiffs,

UNITED STATES,

Defendant.

BEFORE: SENIOR JUDGE NICHOLAS TSGUCALAS

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

Ieenecneenaersenusten ROBLES EA ate linn

18a

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 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.

19a

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.

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 piaintiffs’ 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

20a

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.

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),' 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.

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.” /d.

at 1544. In particular, the CAFC interpreted “‘expenses of

' 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).

;

2la

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.” Jd. 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 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, | 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.

22a

§ 1466(a) if a “but for” approach was applied. See id. The

CAFC, therefore, concluded that these cases were

“incorrectly decided.” /d. 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 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.”

/d. 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).

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

23a

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.” Jd. 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.

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

24a

date of HQ memorandum 113308. See 29 Cust. B. & Dec. 24

(Apr. 5, 1995).? 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 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). 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.

? Customs also published the text of the Texaco decision in the

Customs Bulletin and Decisions. See 29 Cust. B. & Dec. 19 (Mar. 8,

1995).

> 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).

25a

Il. 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.

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

26a

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 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 J 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.’ Mer. 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

27a

assert that Texaco requires Customs to apply a “two-prong”

test on a case-by-case, rather than a per se, basis to 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 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

28a

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), /nternational

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.

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

29a

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 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 comply with the statutory notice-and-comment

requirements before assessing duties to expenses at issue in

this case. See id. at 11-15.

30a

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),’ 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 U.S.C. § 1315(d).° 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

* 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 thar 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).

> HQ memorandum 113308 stated impertinent 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).

3la

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 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 mer-

chandise” 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.

° 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).

32a

In the alternative, defendant argues that even if one

assumes that an “administrative ruling” resulted in the

assessment of 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 thai 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.’ Although plaintiffs note that in Texaco the

CAFC stated “we hold that the imposition of the fifty percent

ad valorem duty upon the 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.

” 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.

;

33a

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

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 plaintiffs did not meet in the case.” 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 affirma-

tively 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 estab-

lished a one-prong “but for’ test for determining whether a

vessel repair expense under 19 U.S.C. § 1466(a) is dutiable.

* 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.

34a

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

eiements of the statute were violated. To trigger this

procedural requirement, there must have been (1) an

administrative ruling that increases 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, 17 Cust. Ct. 1, 3, C.D. 1009 (1946)

(noting that 19 U.S.C. § 1315(d) is limited to an admin-

istrative ruling changing an EUP of a lower duty rate, but

does not apply where the higher assessment is due to a

35a

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 statute.’ See Pls.’ Mem.

” Title 19, United States Code, § 1625(c) provides in pertinent part:

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

36a

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 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 allegedinterpretive 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

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.

37a

without first publishing notice and giving interested parties

the opportunity to comment on whether Texaco was correct—

an irrelevant question since 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.” Jd. 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. /d. 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 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

38a

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 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

39a

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 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 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

40a

concer 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 of facts alluded to the issue.'’ 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.

' 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.”).

4la

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

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.