UNITED STATES, Plaintiffs-Appellee, UPS CUSTOMHOUSE

Attachment “I”
2008~1409
IN THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
UNITED STATES,
Plaintiffs-Appellee,
UPS CUSTOMHOUSE BROKERAGE, INC.,
Defendant-Appellant.
Appeal from the United States Court of International Trade in Case
No. 04-00650, Judge Gregory W. Carman.
BRIEF OF PLAINTIFF-APPELLEE UNITED STATES
OF COUNSEL:
COURTNEY E.SHEEHAN
Attorney
Commercial Litigation Branch
Civil Division
Department of Justice
GREGORY G. KATSAS
Assistant Attorney General.
JEANNE E. DAVIDSON
Director
EDWARD M. GREENWALD
Attorney
Office of the Associate Chief Counsel
U.S. Customs & Border Protection
U.S. Department of Homeland Security
Chicago, Illinois 60607-4523
PATRICI~ M. McCARTHY
Assistant Director
Commercial Litigation Branch
Civil Division
Department of Justice
1100 L Street, N.W.
Washington, D.C. "20530
Tel: (202) 307-0164
November 6, 2008
Attorneys for Plaintiff-Appellee
’ TABLE OF CONTENTS
STATEMENT OF RELATED CASES ................................. viii
COUNTER-STATEMENT OF THE ISSUES ............................. 1
COUNTER-STATEMENT OF THE CASE ................................2
Nature Of The Case ....................................... 2
II.
Course Of Proceedings Below ............................... 3
COUNTER-STATEMENT OF THE FACTS ..............................4
StatutoryAnd Regulatory Framework ..........................4
A. Subheading 8473.30.9000 Of The
Harmonized Tariff Schedule ~. ........................... 4
B. Title 19, United States Code, Section 1641 ................4.
C. Regulatory Framework ’
II.
’
5
Factual Background ........................................ 8
SUMMARY OF ARGUMENT ........................................ 11.
ARGUMENT
’
13
’
I.
Standard Of Review
II.
The Trial Court Did Not Err In Finding That UPS
Failed To Exercise Responsible Supervision And
Control Over Its Customs Business
13
’
Customs Filled In The Gap. Left By Congress
With Its Own Definition Of "Responsible Supervision
And Control .......................................
No
14
15
UPS Misreads Customs’ Regulation Defining
"Responsible Supervision And Control" .......... . ....... 17
Co
III.
UPS Is Merely Dissatisfied With The Result
Of Customs’ Consideration Of The Factors
Set Forth In Section 111.1 .............................25
The Trial Court Did Not Err In Finding That
UPS Committed Multiple violations Of Section 1641 ....¯ ....... 28
No
The Plain Language Of Section 1641 Does
Not Support A Cap ..................................29
The Words "Violation.Or Violations" Do Not
Limit UPS’s Liability To A Single Penalty ..........31
w
The Statute Does Not Limit Liabilty To An
Aggregate $30,000 Penalty For Multiple Violations
Preceding A Pre-Penalty Notice ...................33
The Trial Court Did Not Err In Deferring To Customs’
’
Interpretation Of Section 1641 (d)(2)(A)
34
To The Extent Relevant, Legislative History
Confirms That UPS’s Liability Is Not Capped .............38
Other Penalty Provisions Undermine Any Congressional
Intent To Limit Liability To A Single Or Aggregate
$30,000 Penalty For All Prior Violations "
go
41
The Trial Court Correctly Held That UPS’s
"Parade Of Horribles" Is Without Basis , ................. 45
UPS’s Purported Liability Cap Would Hinder
Effective Customs Law Enforcement ....................47
IV.
The Trial Court Did Not Err In Finding That UPS
Misclassified Certain Merchandise Under The HTSUS ..........50
CONCLUSION ....................................................
ii
55
TABLE OF AUTHORITES
PAGES:
CASE:
Am. Express Co. v. United States,
262 F.3d 1376, 1382-83 (Fed. Cir. 2001) ........................... 16
Barnhart v. Thomas,
540 U.S. 20, 26 (2003)
"
32
Bausch & Lomb, Inc. v. United States,
148 F.3d 1363, 1364 (Fed. Cir. 1998) .............................. 49
Bowles v. Seminole Rock & Sand Co.,
325 U.S. 410, 414 (1945) ......................................... 16
Capital Network Sys., Inc. v. F.C.C.,
28 F. 3d 201,204 (D.C. Cir. 1994) ............................. 17, 18
Carolina Tobacco Col v. Bureau of Customs & Border Protection,
402 F.3d 1345, 1350 (Fed. Cir. 2005)
’
passim
Cathedral Candle Co. v. United States,
400 F.3d 1352, 1363 (Fed. Cir. 2005) .......................... passim
Chevron USA, Inc. v. Natural Resources Defense .Council, Inc.,
467 U.S. 837, 842-43 (1984) ................................. passim
Corus Staal BV v. Dep’t of Commerce,
395 F.3d 1343, 1346 (Fed. Cir..2005) .............................. 14
Drams of One Megabit and Above From Taiwan,
52
64 Fed. Reg. 32,521, 32,521 (Int’l Trade Comm’n June 17, 1999) .......
Duncan v. Walker,
533 U.S. 167, 173 (2001) .................................... passim
Exxon Mobil Corp.v. Allapattah Serv., Inc.,
Ill
545 U.S. 546, 125 S. Ct. 2611, 2626 (2005) ......................... 37
Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A.,
530 U.S. 1, 6 (2000) ............................................ 28
Hartman v. Nicholson,
483 F.3d 1311, 1315 (Fed. Cir. 2007) ........................... .... 25
Hasbro Indus., Inc. v. United States,
879 F.2d 838, 840 (Fed. Cir. 1989) ......... : ......................
49
Home Depot U.S.A., Inc. v. United States,
491 F.3d 1334, 1335 (Fed. Cir. 2007) ...................... , ....... 12
Knutzen v. Eben Ezer Lutheran Hous. Ctr..,
815 F.2d 1343, 1349 (10th Cir. 1987) .............................. 30
Lamie v. United States Trustee,
540 U.S. 526,534 (2004) ........................................ 29
Lee v. United States.,
329 F.3d 817, 822-23 (Fed. Cir. 2003) ............ ............. passim
Louder v. Dep’t of Homeland Sec.,
504 F.3d 1378, 1383 (Fed. cir. 2007) .............................. 25
Marcel Watch Co. v. United States,
11 F.3d 1054, 1056 (Fed. Cir. 1993) .................. .. ............
49
McEntee v. Merit Sys. Protection
404 F. 3d 1320, 1328 (Fed Cir. 2005) .............................. 30
Medline Indus. Inc. v. United States,
62 F.3d 1407, 1409 (Fed. Cir. 1995) .... : ..........................
51
MetChem, Inc. v. United States,
513 F.3d 1342, 1345 (Fed. Cir. 2008) ............................. 12
Metrophones Telecomm., Inc. v. Global Crossing Telecomm., Inc.,
423 F.3d 1056, 1067 (9th Cir. 2005). ~ ............................. 18
iv
Public Citizen v. Farm Credit Admin.,
938 F.2d 290, 292 (D.C. Cir. 1991) ................................ 37
Reno v. Koray,
515 U.S. 50, 61 (1995) ......................................
passim
Rocknel Fastener, Inc. v. United States,
267 F.3d 1354, 1357 (Fed. Cir. 2001) ..............................
13
Rumsfeld v. United Technologies Corp.,
315 F.3d 1361, 1370 (Fed. Cir. 2003) .............................. 22
Securities and Exchange Commission v. Sloan,
436 U.S. 103 (1978) ...........................................
Skidmore v. Swift & Co.,
323 U.S. 134, 140 ... (1944) .................................
44
13, 36
Smith v. United States,
508 U.S. 223,229 (1993) ........................................
30
United States v. Haggar Apparel Co.,
526 U.S. 380, 391 (1999) ........................................
16
United States v. Mead Corp.,
533 U.S. 218 (2001) .........................................
13,36
United States v. Ricci,
985 F. Supp. 125, 126 (Ct. Int’l Trade 1997)
aff’d, 78 F.3d 1307 (Fed. Cir. 1998) ............... ............
passim
United States v. Ron Pair Enter., Inc.,
489 U.S. 235,241 (1989) ........................................
28
U.S. Steel Group v. United States,
225 F.3d 1284, 1287 (Fed. Cir. 2000) .................... ’ .......... 14
United States v. UPS Customshouse Brokerage, Inc.,
213 Fed. Appx. 985,986, 2006 WL 3193545,
at * 1 (Fed. Cir. Dec. 29, 2006) ........ . ......................... 3, 55
V
United States v. UPS Customshouse Brokerage, Inc.,
442 F. Supp. 2d 1290 (Ct. Int’l Trade 2006) .......................
3, 55
United States v. UPS Customshouse Brokerage, Inc.,
464 F. Supp. 2d 1364 (Ct. Int’l Trade 2006) .......................... 3
United States v. UPS Customhouse Brokerage, Inc.,
558 F. Supp. 2d 1331, 1356 (Ct. Int’l Trade 2008) ..................... 2
United States v. Vickery,
199 F. Supp. 2d 1363, 1369 (N.D. Ga. 2002) ........................ 30
Universal Elecs., Inc., v. United States,
112 F.3d 488, 491 (Fed. Cir. 1997) ................................ 49
Universal Hosp. Ctr., Inc. v. Richardson,
757 F.2d 1445, 1453 (4th Cir. 1985) .................... .... : ....... 20
Warner-Lambert Co. v. United States,
407 F.3d 1207, 1209 (Fed. Cir..2005) ..............................
13
STATUTES:
19 U.S.C. §§ 1514, 1515 .............................................
49
19 U.S.C. 1592 ......... : ...........................................
39
19 U.S.C. § 1641 ...............................................
passim
15
19 U.S.C. § 1641(a) .............. ¯ ..... ..............................
19 U.S.C. § 1641(b)(4) .... . ......................................
passim
19 U.S.C. § 1641(b)(6) ........................ .......................
42
19 U.S.C. §1641(d)(Z)(a) .............................................
39
19 U.S.C. §1641(d)(2)(A) ........ . ...............................
vi
passim
19 U.S.C. § !641(d)(2)(B) ............................................
15, 17
19 U.S.C. § 1641(f) .............................................
"
28 U.S.C. § 2640
41
13
REGULATIONS:
¯
19 C.F.R. Pt. 111
17
,. 44
19 C.F.R § 111 (E) ................................................
passim
19 C.F.R. § 111.1 ...............................................
19 C.F.R. § 111.9 ....................................................
7
19 CFR 111.1 a(d) ....................................................
22
19 C.F.R. § 111.19
46
19 C.F.R. §. 111.53
7
~
19 C.F.R. § 111.91, 111.53(a)-(f)
"
passim
19 C.F.R. §§ 111.92, 111.95 ...........................................
19 C.F.R. Pt. 171
~
’
"
46
passim
MISCELLANEOUS:
Miscellaneous Tariff and Trade Bills, June 21, 1984: Hearings
on 573 Before the Subcomm. On Trade of the House Ways and Means Comm.,
98th Cong., 2d Sess. 620 (1984) ...... . .........................
38, 48
vii
STATEMENT OF RELATED CASES
Pursuant to Fed. Cir. R. 47.5, counsel for plaintiff-appellee, United States,
states that the Court previously declined to entertain an interlocutory appeal of the
denial of defendant-appellant’s motion for partial summary judgment in United
States v. LIPS Customshouse Brokerage, Inc., 442 F. Supp. 2d 1290 (Ct. Int’l Trade
2006). United States v. UPS Customshouse Brokerage, Inc., 213 Fed. Appx. 985,
986, 2006 WL 3193545, at ’1 (Fed. Cir. Dec. 29, 2006). She is unaware of any
other case pending before this Court or any other court that may directly affect or be
directly affected by the Court’s decision i.n this appeal.
viii
2008-1409
UNITED STATES. COURT OF APPEALS FOR THE FEDERAL CIRCUIT
UNITED STATES,
Plaintiff-Appellee,
V.
UPS CUSTOMHOUSE BROKERAGE, INC.,
Defendant-Appellant.
Appeal from.the United States Court of International Trade in Case No. 0400650, Judge Gregory W. Carman.
BRIEF FOR PLAINTIFF-APPELLEE UNITED STATES
COUNTER-STATEMENT OF THE ISSUES1
1.
Whether the Court of International Trade ("trial court") erred in
finding that each of the persistent misclassifications of certain merchandise under
the Harmonized Tariff Schedule of the United States ("HTSUS") by defendant-
1 Pursuant to Fed. Cir. R. 28(b), we provide counter-statements of the
issues, the case, the facts, and the standard of review because those of the
defendant-appellant are either absent, non-compliant, or argumentative.
appellant, UPS Customhouse Brokerage, Inc. ("UPS"), was a separate failure to
exercise responsible supervision and control in violation of 19 U.S.C. § 1641.
2. Whether the trial court erred in holding that section 1641 does not cap
UPS’s liability for its persistent failures to exercise responsible supervision and
control to a single monetary penalty 0r penalties totaling $30,000.
3. Whether the trial court erred in finding that UPS misclassified certain
merchandise under the HTSUS.
COUNTER-STATEMENT OF THE CASE
I.
Nature Of The Case
UPS, a licensed customs broker, appeals the final judgmentand decision in
which the trial court held, after trial, that: (1 i UPS misclassified ce~ain
merchandise under subheading HTSUS 8473.30.9000; (2) UPS’s misclassification
under the facts and circumstances demonstrated at trial amounted to multiple
violations of 19 U.S.C. § 1641, which requires brokers to "exercise responsible
supervision and control" over their customs businesses; and (3) the United States
was entitled to judgment against UPS in the amount of $75,000, plus any applicable
interest that may be due. United States v. UPS Customhouse Brokerage, Inc., 558
F. Supp. 2d 1331, 1356 (Ct. Int’l Trade 2008).
II.
Course Of Proceedings Below
The United States initiated this action in 2004 to recover $75,000 in unpaid
penalties that United States Customs and Border Protection ("Customs") had
assessed for UPS’s persistent failure to exercise responsible supervision and control
over its customs business in violation of 19 U.S.C. § 1641(b)(4). In 2005, UPS
filed a motion for partial summary judgment in which it contended that section
1641 limited Customs to an aggregate monetary penalty of $30,000 for all
violations committed prior to the first penalty notice.
After denying UPS’s motion in June 2006, see United States v. LIPS
Customshouse Brokerage, Inc., 442 F. Supp. 2d 1290 (Ct. Int’l Trade 2006), the
trial court granted UPS’s contested motion to certify for interlocutory appeal
whether section 1641 limits UPS’s liability for multiple violations of that statute to
a single monetary penalty, or, alternatively, to aggregate penalties notto exceed
$30,000. United States v. UPS Customshouse Brokerage, Inc., 464 F. Supp. 2d
1364 (Ct. Int’l Trade 2006). In late 2006, this Court declined to entertain an
interlocutory appeal. United States v. UPS Customshouse Brokerage, Inc., 213
Fed. Appx. 985,986, 2006 WL 3193545, at*l (Fed. Cir. Dec. 29, 2006).
Following a three-day bench trial held in late 2007, the court entered a
judgment in the amount of $75,000 in favor oftl~e United States in May 2008.A1;
see also 558 F. Supp. 2d 1331.
This appeal followed.
COUNTER-STATEMENT OF THE FACTS
I.
Statutory And Regulatory Framework
A. Subheading 8473.30.9000 Of The Harmonized Tariff Schedule
HTSUS heading 8473 includes parts for automated data processing
equipment. To ensure proper classification of merchandise under this heading, a
customs broker must validate that the imported merchandise satisfies three
requirements: (1) it meets the definition of automated data processing equipment
under the tariff; (2) it constitutes a "part or accessory" of automated data processing
equipment; and (3) it contains a cathode-ray-tube. A405, 432-33,488.
B. Title 19~ United States Code~ Section 1641
This appeal concerns the meaning of 19 U.S.C. § 1641(b)(4), which provides
that "[a] customs broker shall exercise responsible supervision and control over the
customs business it conducts."
Section 1641 also authorizes Customs to enforce its provisions, including
subsection (b)(4), through the imposition of various sanctions, including but not
limited to, monetary penalties. Subsection (d)(2)(A) provides:
(A) Monetary Penalty
Unless action has been taken under subparagraph (B), the
appropriate customs officer shall.serve notice in writing
upon any customs broker to show cause why the broker
should not be subject to a monetary penalty not to exceed
$30,000 in total for a violation or violations of this
section.
19 U.S.C. § 1641(d)(2)(a).
Although Congress afforded Customs discretion in assessing penalties
pursuant to section 1641 (d)(2)(A), this discretion is not unlimited. Multiple
statutory and regulatory safeguards prevent excessive penalties. These safeguards
include the right to administrative review by Customs and de novo judicial review
in the Court of International Trade.
C. Regulatory Framework
Because section 1641 (b)(4) does not define "responsible supervision and
control," Customs ~romulgated a regulation to provide a general, non-exclusive
definition of responsible supervision and control:
Responsible supervision and control. "Responsible
supervision and control" means that degree of supervision
and control necessary to ensure the proper transaction of
the customs business of a broker, .... While the
determination of what is necessary to perform and
maintain responsible supervision and control will vary
depending upon the circumstances in each instance,
factors which [Customs] will consider include, but are not
limited to: The training required of employees of the
broker; the issuance of written instructions and guidelines to employees of the broker; the volume and type of
business of the broker; the reject rate for the various
customs transactions; the maintenance of current editions
of [Customs] Regulations, the [HTSUS], and [Customs]
issuances; the availability of an individually licensed
broker for necessary consultation with employees of the
broker; the frequency of supervisory visits of an
individually licensed broker to another office of the
broker that does not have a resident individually licensed
broker; the frequency of audits and reviews by an
individually licensed broker of the customs transactions
handl,ed by employees of the broker; the extent to which
the individually licensed broker who qualifies the district
permit is involved in the operation of the brokerage; and
any circumstance which indicates that an individually
licensed broker has a real interestin the operations of a
broker.
19 C.F.R. § 111.1.
Customs also promulgated a regulation to implement section 164 l(d)(2)(A)
and specify the permissible grounds for imposition of a monetary penalty and the
statutory per-penalty maximum:
§111,91 Grounds for imposition of a monetary
penalty; maximum penalty.
Customs may assess a monetary penalty or penalties as
follows:
(a) Inthe case of a broker, in an amount not to
exceed an aggregate of $30,000 for one or more of the
reasons set forth in §§ 111.53(a) through (f), other than
those listed in § 111.53(b)(3), and provided that no license
or permitsuspension or revocation proceeding has been
instituted against the broker under subpart D of this part
for any of the same reasons; ....
19 C.F.R. § 111.9. Section 111.53 lists the underlying conduct for which Customs
may initiate proceedings for the suspension or revocation of a broker’s license or
permit. 19 C.F.R. § 111.53.
Customs also promulgated mitigation guidelines, which were not subject to
notice and comment. Section XII of the mitigation guidelines provides general
limitations on monetary penalty assessments for customs brokers:
XII. LIMITS ON PENALTY ASSESSMENTS
A. A broker shall be penalized a maximum of $30,000
for any violation or violations of the statute in any one
penalty notice.
B. If a broker is penalized to the maximum the statute
will allow and continues to commit the same violation or
violations, revocation or suspension of his license would
be the appropriate sanction. Barring such revocation or
suspension action, he may again be penalized to the
maximum the statute will allow.
C. From any one audit, the maximum aggregate penalty
for all violations discovered is $30,000.
19 C.F.R. Pt. 171, App. C, § XII. Subpart B of section XII providesthat when "a
broker is penalized to the maximum that the statute will allow and continues to
commit the same violation or violations.., he may again be penalized" in lieu of
suspension or revocation of his license. 19 C.F.R. Pt.. 171, App. C, § XII.B (2000).
Moreover, subparagraph A of section XII explicitly provides that "a broker shall be
penalized a maximum of $30,000 for any violation or violations of the statute in any
one penalty notice." Id.
II.
Factual Background
In 1995, Customs began monitoring industries’ rate of compliance with the
~HTSUS when importing merchandise into the United States. 558 F. Supp. 2d at
1339 (citing A400-01); A640. Within the communications industry, Customs
found that HTSUS subheading 8473.30.9000 had Unacceptably low compliance
rates, especially among express consignment operators like UPS. 558 F. Supp. 2d
at 1339 (citing A419, 421,428, 437, 547, 640). (An express consignment operator
provides a fully integrated service, including transportation and customs clearance,
and exercises tight administrative controls on the products on which it provides
service, usually door-to-door service. A569.) Customs found that this subheading
was used erroneously "’99% of the time.’" Id__~. In training materials, Customs
noted:
In searching for discrepancies, .it is probably safe to say
that most [automatic data processors] parts do no~
incorporate a [cathode ray tube], so when the latter
subheadings are used, (99% of the time in error), a
discrepancy is a pretty sure thing. These HTS [US]
numbers are frequently used because they fall last in the
parts heading, and had the importer/broker actually
reviewed the tariff or the invoice, they wouldn’t be using
them.
A642 (emphasis added).
After sending the brokerage community, including UPS, an advisory letter,
558 F. Supp. 2d at 1340 (citing A399-400, 420-22, 590-92, 667-68), Customs
conducted multiple training sessions, including with UPS, regarding the proper use
of HTSUS subheading 8473.30.9000. Id__~. (citing A398-99, 408-10, 594-95,669Despite Customs’ training and UPS’s assurances that it had taken
775).
corrective measureS, UPS continued to misuse HTSUS subheading 8473.30.9000.
Id. at 1340 (citing A667-68, 776-78); id__~, at 1349. From 1997 through 2000,
Customs issued letters warning UPS that its continued misuse of HTSUS
subheading 8473.30.9000 would result in penalty action. Id__~. at 1340-42 (citing
A779-80). Customs personnel also telephoned UPS. regarding its noncompliance.
A780.
After these efforts failed, beginning in May 2000, Customs issued eight
penalties to UPS for violations covering entries made between January andMay
2000, which were later paidl2 558 F. Supp. 2d at 1337 & n.7 (citing agreed facts).
2
Although these violations occurred at the Port .of Louisville, Kentucky,
9
In July 2000, Customs initiated three penalty cases, -300221, -300222, and 300223, each in the amount of $5,000. Id. (citing agreed facts); see also id. at 1344.
In August 2000, Customs initiated two penalty cases, -300319 and -300320, each
in the amount of $30,000. Id. at 1337 (citing agreed facts); see also id__~, at 1344.
Customs based each $5,000 penalty case upon five misclassified entries, and it
based each $30,000 penalty case upon 15 misclassified entries. Id. at 1345 (citing
A781-84, 789-92, 797-800, 804-09, 817-24). After considering UPS’s pre-penalty
responses, Customs issued the three $5,000 penalties on September 26, 2000, and
the two $30,000 penalties on October 19, 2000, for a total amount of $75,000 in
penalties.3 Id__~. (citing A785-88, 793-96, 801-03, 810-16, 825-31). Customs denied
.UPS’s subsequent petitions, and after UPS’s failed to pay these penalties, the
United States commenced this action to collect the $75,000 in unpaid penalties. See
id__~. (citing A93, 95-96).
the Port of Cleveland, Ohio initiated and administered all penalty actions. A601,
603,613,618-19, 628-29.
Contrary to UPS’s suggestion, UPS Br. at 12 n.4, Customs did not lack
internal approvals to impose the two penalties that exceeded $10,000. Customs
eliminated the policy to which UPS refers in 2000 (published as T.D. 00-57,
effective Oct. 5, 2000). Petitions for Relief:. Seizures, Penalties, and Liquidated
Damages, 65 Fed. Reg. 53,565 (Dep’t of the Treasury Sept. 5, 2000). Accordingly,
¯ the policy was not even in effect at the time Customs issued the penalties that
10
SUMMARY OF ARGUMENT
UPS fails to establish any error in the trial court’s final judgment entered
after: (1) a comprehensive published decision denying UPS"s motion for partial
summary judgment; (2) this Court’s denial of interlocutory review; (3)a four-day
bench trial, and (4) an equally detailed post-trial opinion by the trial court
explaining the reasons why the United States ,is entitled to a judgment in the amount
of $75,000.
First, UPS has failed to establish any error in the trial court’s finding that its
misclassifications of merchandise, under the facts and circumstances demonstrated
at trial, amounted to multiple violations of 19 U.S.C. § 1641, which requires
brokei’s to "exercise responsible supervision and control" over their customs ¯
businesses. The statute is silent as to the meaning of "responsible supervision and
control," and the trial court properly deferred to Customs’ reasonable interpretation
of its own regulation promulgated to fill in the gap left by Congress. Even
assuming UPS could establish error in the trial court’s interpretation of the
regulation as not requiring Customs to consider each and every factor contained in
the regulation’s non-exhaustive list before issuing a penalty, UPS has failed to
establish that Customs did not, in fact, consider all relevant factors before issuing
exceeded $10,000 in this case.
11
the challenged penalties. At bottom, UPS disagrees with the way in which Customs
weighed various factors to conclude that it had repeatedly failed to exercise
responsible supervision and control.
Second, UPS has failed to establish that the trial court erred in holding that
the statute does not cap its liability to $30,000 for multiple violations prior to the
first pre-penalty notice. The trial court’s reading is consistent with the plain
language of the statute. To the extent, if any, that legislative history is relevant, it
does not support UPS’s ungrammatical reading of the statute, which would impair
customs law enforcement if accepted.
¯ Finally, UPS has failed, to establish any error in the trial court’s finding that it
misclassified certain merchandise under subheading HTSUS 8473.30.9000. The
trial court construed heading 8473 in the most grammatical fashion. Indeed, UPS’s
contentions that it had made strenuous efforts to follow Customs’ training for
proper classification belie UPS’s current position that Customs trained brokers to
use the wrong classifications. Because UPS has failed to establish any error by the
trial court, the judgment below should be affirmed.
12
ARGUMENT
I.
Standard Of Review
This Court reviews "questions of law de novo, including the interpretation of
the terms of the HTSUS, while factual findings by the Court of International Trade
are reviewed for clear error." MetChem, Inc. v. United States, 513 Fi3d 1342, 1345
(Fed. Cir. 2008) (citing Home Depot U.S.A., Inc. v. United States, 491 F.3d 1334,
1335 (Fed. cir. 2007)) (other citation omitted). Notwithstanding the Court’s d__e_e ¯
novo review of interpretations of tariff provisions, "classification decisions by
Customs.interpreting provisions of the HTSUS may receive some deference under
the principles of Skidmore v. Swift & Co., 323 U.S. 134, 140... (1944)." Id_~.
(citing Rocknel Fastener, Inc. v. United States, 267 F.3d 1354, 1357 (Fed. Cir.
2001) (citing United States v. Mead Corp., 533 U.S. 218 (2001)). Nonetheless,
"Customs’ rulings are ’not controlling upon the courts by reason of their authority,’
Skidmore, 323 U.S. at 140 [], and ’this court has an independent responsibility to.
decide the legal issue of the proper meaning and scope of HTSUS terms.’" Id.
(quoting Warner-Lambert Co. v. United States, 40.7 F.3d 1207, 1209 (Fed. Cir.
2005)).
With regard to a penalty determined pursuant to section 1641, the trial Court
applies the de novo standard "to both the question of whether a penalty is warranted
13
and the amount of the penalty." United States v. Ricci, 985 F. Supp. 125, 127(Ct.
Int’l Trade 1997) (citing United States v. Priori _ty Prods., Inc., 615 F..Supp 591,593
(Ct. Int’l Trade 1985), aff’d 793 F.2d 296 (Fed. Cir. 1986)), aff’d 178 F.3d 1307
(Fed. Cir. 1998) (table). That is, the trial court determines ’°the amount of penalty,
if any; independently of Customs’ decision." Id__~. Accordingly, "[w]here, as here,
Congress has delegated to the judiciary discretion to determine the amount of civil
penalties under a statute," this Court reviews the trial court’s calculation of such
penalties for abuse of discretion. United States v. Ford Motor Co.; 463 F.3d 1286,
1290 (Fed. Cir. 2006) (citing Sierra Club, Lone Star Chapter v. Cedar Point Oil
Co., Inc., 73 F.3d 546, 573-74 (5th Cir. 1996) (reviewing district court’s penalty
determination under 33 U.S.C. § 1319(d) for abuse of discretion); Aft. States
Found., Inc. v. Tyson Foods, Inc., 897 F.2d 1128, 1142 (reviewing district court’s
penalty determination under 33 UIS.C. § 1319(d) for abuse of discretion)).
II.
The Trial Court Did Not Err In Finding That UPS Failed To Exercise
Responsible Supervision And Control Over Its Customs Business
As to the facts, the law, and the amount of the penalty, the trial court
reviewed de novo the Government’s claims pursuant 19 U.S.C. § 1641(d)(2)(A).
558 F. Supp. 2d at 1336 (citing 28 U.S.C. § 2640 (2000); R~cc____~i, 985 F. Supp. at
126). After making numerous findings of fact, id. at 1339-45, the trial court
"turn[ed] to the principal issue to be decided: Whether UPS failed to exercise
14
responsible supervision and control, in violation of 19 U.S.C. § 1641(b)(4), by
repeatedly misclassifying imported merchandise under 30.90[00] when that
merchandise did not contain [cathode ray tubes]." Id__~. at 1349. The court
committed no error, and its judgment should be affirmed.
A.
Customs Filled In The Gap Left By Congress With Its Own
Definition Of "Responsible Supervision And Control"
The trial court first considered what "responsible supervision and control"
means in the context of a customs brokerage business, and analyzed "it de novo in
light of the evidence presented at trial." Id__~. The court noted that section 1641 does
not define the term "responsible supervision and control." Id__~.
The Supreme Court’s decision in Chevron USA, Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837, 842-43 (1984), governed the trial court’s
analysis of whether Customs’ application of section 1641 was permissible in this
case. Applying Chevron’s two-step approach, the court first determined whether
the statute clearly expresses the intent of Congress; if it had, then the trial court
would have been required to give effect to the unambiguously expressed intent of
Congressl 467 U.S. at 482. Because "Congress has not spoken directly on the
issue," the trial court addressed "the second question of wtiether the agency’s
interpretation ’is based on a permissible construction of the statute.’" U.S. Steel
Group v. United States, 225 F.3d 1284, 1287 (Fed. Cir. 2000) (citing Chevron, 467
15
U.S. at 843); see also Corus Staal BV v. Dep’t of Commerce, 395 F.3d 1343, 1346
(Fed. Cir. 2005) ("[I]fthe statute is ambiguous with respect to a specific issue,
however, the question for the court is whether the agency’s answer is based on a
permissible construction of the statute.") (citations and internal quotation marks
omitted).
Accordingly, the trial court concluded that "[w]hen Congress enacted 19
U.S.C. § 1641(a), it explicitly delegated gap-filling authority to Customs." 558 F.
¯ Supp. 2d at 1349 (citing 19 U.S.C. § 1641(f) (2000)). Acting in accordance with
that delegation, and after providing notice and comment, Customs promulgated
regulations defining, among other things, the phrase "responsible supervision and
control.’, Id___~. (citing 19 C.F.R. § 111.1 (2000)).
The trial court’s deference to the agency’s interpretation of responsible
supervision and control in this case was entirely appropriate. An agency’s
interpretation of its own regulations is entitled to even greater deference. See
Cathedral Candle Co. v. United States, 400 F.3d 1352, 1363 (Fed. Cir. 2005) ("To
begin with, it is well settled that an agency’s interpretation of its own regulations is
entitled to broad deference from the courts.") (citations omitted); Carolina Tobacco
Co. v. Bureau of Customs & Border Protection, 402 F.3d 1345, 1350 (Fed. Cir.
2005) ("Customs’ interpretation of its own regulation is entitled to substantial
16
weight"). Indeed, the deference owed to an agency’s interpretation of its own
regulations is broader than the deference to an agency’s construction of a statute,
because in the former case the agency is addressing its own intentions rather than
those of Congress. See Am. Express Co. v. United States, 262 F.3d 1376, 1382-83
(Fed. Cir. 2001). Thus, the agency’s construction of its own regulations is "of
controlling weight unless it is plainly erroneous or inconsistent with the regulation."
Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945); accord Cathedral
Candle, 400 F.3d at 1364. Affording deference to Customs’ statutory and
’regulatory interpretations is consistent with the de novo review explicitly applied by
the trial court in this case. See United States v. Haggar Apparel Co., 526 U.S. 380,
391 (1999) ("Deference can be given to the regulations without impairing the
authority of the court to make factual determinations, and to apply those
determinations to the law, de novo.") (internal citation omitted).
B.
UPS Misreads Customs’ Regulation Defining "Responsible
Supervision And Control"
To fill in the gap left by Congress, Customs promulgated regulations to
define, among other things, responsible supervision and control. See 19 C.F.R.
§ 111.1. The trial court held "that Customs’ definition of ’responsible supervision
and control,’ as set forth in section 111.1, is reasonable." 558 F. Supp. 2d at 1351.
On appeal, UPS contends that section 111.1 provides that Customs "will consider"
17
numerous factors listed in the regulation, and that Customs must, but did not in this
case, consider each of these factors in determining whether a broker has violated
section 1641. See, e , UPS Br. at 16. UPS fails to identify any legal authority
whatsoever to support its interpretation of section 111.1 or to establish any error by
the trial court.
As an initial matter, deference to Customs’ regulation is warranted for two
reasons. First, deference is warranted by the explicit grant of authority Congress
conveyed under 19 U.S.C. § 1641(f), which provides in part that "[t]he Secretary
may prescribe such rules and regulations relating to the Customs business of
customs brokers as the Secretary considers necessary to protect.., the revenue of
the United States, and to carry out the provisions of this section. :.." 19 U.S.C. §
1641 (f). Customs promulgated 19 C.F.R. § 111.1 to provide a general, nonexclusive definition for responsible supervision and control consistent with this
statutory authority. See 51 Fed. Reg. 30,336 (Dept. of Treas. Aug. 26, 1986); 19
C.F.R. § 111.1. The regulation, therefore, is a permissible exercise of agency
rulemaking authority, and is entitled to the requisite weight as law. See Lee v.
United States, 329 F.3d 817, 822-23 (Fed. Cir..2003) (according deference to
various broker regulations under 19 C.F.R. Pt. 111).
18
Second, "responsible" is an ambiguous statutory term similar to "just,"
"unjust," "reasonable," and "unreasonable;" therefore, Customs’ interpretation of
the ambiguous statutory phrase "responsible supervision and control" is owed
"substantial deference." See Capital Network Sys., Inc.. v. F.C.C., 28 F. 3d 201,
204 (D.C. Cir. 1994) (citing Chevron); see also Metrophones Telecomm., Inc. v.
.Global Crossing Telecomm., Inc., 423 F.3d 1056, 1067 (9th Cir. 2005) (same).
Notably, UPS does not challenge the validity of section 111.1. Rather, UPS
contends that the trial court erred in deferring to Customs’ reasonable interpretation
and application of its own regulation. See 558 F. Supp. 2d at 1353. UPS contends
that Customs was required to consider, but did not consider in this case, each of the
non-exhaustive list of factors set forth .in section 111.1 before determining whether
UPS had violated 19 U.S.C. § 1641(b)(4). UPS Br. at 23-34.
Section 111.1 provides that "responsible supervision and control" is the
"degree of supervision and control necessary to ensure the proper transaction of.the
customs business as a broker," which "will vary depending upon the circumstances
in each instance." See 19 C.F.R. § 111.1. Although the regulation provides a list of
sample steps a broker should take, where applicable, to exercise responsible
supervision and control, the list is necessarily non-exhaustive, as amicus curiae
National Customs Brokers & Forwarders Association of America ("NCBFAA")
19
concedes. NCBFAA Br. at 4. This non-exhaustive list manifests Customs’ intent
to recognize that varying circumstances will dictate the appropriate guiding factors
for consideration and implementation. Id.
Although the regulation suggests how brokers may affirmatively engage in
responsible supervision and control, it does not address what specific conduct
constitutes a failure to exercise responsible supervision and control. Id_~. Moreover,
section 111.1 in no way suggests that a broker may immunize itself from liability
for failure to exercise responsible supervision and control by engaging .in one of the
steps set forth in the regulation. Accordingly, Customs need not weigh each and
every example of conduct prior to concluding that a broker had failed to exercise
responsible supervision and control.
UPS’s reading of the regulation is unreasonable given that not all factors
would apply in every instance. Indeed, taking UPS’s logic to its extreme, the
explicitly non-exhaustive nature of the regulation’s list of factors would render it
impossible for Customs ever to comply with the regulation, because Customs
always would be "required" to consider unknown, unspecified factors. Moreover,
where, as here, an agency’s regulations consist of possible factors for consideration,
the agency possesses discretion to weigh them as it deems appropriate.. Cf. Carolina
Tobacco Co., 402 F.3d at 1350 ("In considering the factors, the port director may
20
give them whatever weight he deems appropriate; he may conclude that particular
factors should be given no weight whatsoever."). Thus, the trial court did not err in
holding that Customs’ reasonably interpreted section 111.1 as not requiring
exhaustive consideration of each and every factor listed prior to concluding that
UPS failed to exercise the "degree of supervision and control necessary to ensure
the proper transaction of the customs business as a broker" when it did not correct
its persistent misclassification of merchandise. 558 F. Supp. 2d at 1353.
Nonetheless, UPS contends that the trial court erroneously deferred to
Customs’ interpretation because it is inconsistent with the phrase "will consider."
UPS Br. at 23-29; see also NCBFAA Br. at 6. Its contention is unavailing.
According to UPS, the plain meaning of the phrase "will consider" requires
Customs to consider each and every factor listed in section 111.1 prior to
determining that a broker failed to exercise responsible supervision and control.
See id. It essentially excises the phrase "will consider" from the regulation’s
context and Customs’ intent. "Words and phrases of a statute may not be
interpreted out of context, but individual expressions must be construed as part of
the composite whole and must be accorded only that meaning which other
modifying provisions and the clear intent and purpose of the act will permit."
Universal Hosp. Ctr., Inc. v. Richardson, 757 F.2d 1445, 1453 (4th Cir. 1985)
21
(citations and internal quotation marks omitted). Accordingly, "in determining the
proper interpretation in a statute of the words ’may’ and ’shall’ it is the intention of
the legislature or the proper regulatory agency, which ’should be controlling’ and
that ’no formalistic rule of grammar or word form should stand in the way of
carrying out [this] legislative intent." Id__:. (citations omitted).
Here, Custom’s intent in promulgating section 111.1 was to outline a
necessarily specific and fact-intensive inquiry to determine whether a broker has
exercised responsible supervision and control. Customs manifested this intent by
including language that such an inquiry "will vary depending upon the
circumstances in each instance." 19 C.F.R. § 111.1. By insisting that the words
"will consider" require Customs to use a one-size-fits-all approach to determining
whether a broker exercised responsible supervision and control, UPS ignores
.Customs’ use of the phrase "will vary depending upon the circumstances in each
instance" to denote its need for flexibility in evaluating circumstances that will vary
in each case.
In evaluating the reasonableness of Customs’ interpretation of its own
regulation, the trial court construed the word "will" in section 111.1 to express
"capability or sufficiency." 558 F. Supp. 2d at 1352 n.23 ("The word ’will’ when
used as a verb can be used to express capability or sufficiency, se___~e, e._~.,
22
WEB STER’S THIRD NEW INT’L DICTIONARY 2616 (1986), whereas ’shall’ is
used to express a command or exhortation. Id. at 2085-86."). UPS fails to establish
any error by the trial court in "initially turn[ing],.., to standard dictionary
definitions and other pertinent regulations." Rumsfeld v. United Technologies
CorlL., 315 F.3d 1361, 1370 (Fed. Cir. 2003). As compared to UPS’s extracontextual interpretation of "will consider," the trial court has employed the most
reasonable, common sense interpretation and application of section 111.1, and the
only reading that gives effect to Customs’ intent.
UPS’s further assertion that Customs’ interpretation is inconsistent with prior
readings of the regulation, UPS Br. at 26-28, is unavailing because UPS misplaces
reliance upon a single Customs internal advice request. See A160-61. In fact~ this
internal advice request supports Customs’ interpretation here. In it, Customs was
asked to determine affirmatively whether an individual broker was exercising
responsible supervision.and control, but it could not due to lack. of information.
Customs noted that in the context of assessing compliance, all relevant factors
needed to be addressed. "[U]nless each of the listed criteria in 19 CFR 111.1 l(d)
[now 111.11] was considered and where appropriate, the apparent failure to meet a
specific criterion.., was analyzed, it would be improper for Customs to make a
determination whether responsible supervision and control was being exercised."
23
See id. Thus, Customs stated that, in the context of assessing compliance, :every
relevant factor will be considered where appropriate because failure of any one
specific criterion or factor could amount to non-compliance, irrespective of any
other criterion or factor.
None of this suggests in any way that there must be deficiencies in every
area, or that a single serious deficiency is not actionable. Consequently, the internal
advice request upon which UPS relies in no way contradicts Customs’
interpretation of section 111.1 and its applicability in this context.
At bottom, UPS has failed to offer any plausible interpretation that would
warrant this Court overturning the trial court’s reasonable deference to Customs’
similarly reasonable interpretation. UPS would require Customs to engage in a
formalistic consideration of factors that may not have even the remotest connection
to a given situation. This was never Customs’ intent when promulgating this
regulation. Accordingly, the trial court did not err in deferring to Customs’
interpretation of its own regulation in determining that neither Customs nor the
court were required to weigh each and everyfactor listed in section 111.1 prior to
determining that UPS failed to exercise responsible supervision and control.
24
C.
UPS Is Merely Dissatisfied With The Result Of Customs’
Consideration Of The Factors Set Forth In Section 111.1
Even assuming that the trial court had deferred improperly to Customs’
interpretation of its own regulation, UPS has not established that Customs failed to
consider the relevant factors listed in section 111.1. More importantly, although
UPS contends that Customs should have but did not consider more than one factor,
it is really giving disproportionate weight to one factor - the reject rate. As we
demonstrate below, there is simply no support for UPS’s assertion that the reject
rate is the paramount and dispositive factor in section 111.1. Accordingly, UPS’s
contentions fail.
As an initial matter, Customs did consider, in fact, the factors listed in section
111.1 as LIPS posits it was required to do. Supervisory Import Specialist Lydia
Goldsmith testified that, in assessing the penalties at issue here, Customs did
consider the volume of UPS’s business; the nature of UPS’s business as an express
consignment operator; that UPS filed the entries at the hub; whether UPS maintains
current editions of Customs regulations, the tariff schedules, and Customs
issuances; the ~vailability of an individually licensed customs broker for necessary
consultation with UPS’s employees; the frequency of supervisory visits of an
individually licensed broker to another UPS office that does not have an
individually licensed broker; the frequency of audits and reviews by an individually
25
licensed broker; and the extent to which the individually licensed broker who
qualifies for a district permit is involved in UPS’s operation. A624-26. UPS has
not established that Customs was required to, but failed to consider, a particular
factor or factors that would have changed the amount of the penalties assessed.
Further, UPS’s contention that the trial court’s error was even greater than
that of Customs during the administrative proceeding because the trial court did not
explicitly consider UPS’s "reject rate" defense is unavailing. UPS Br. at 30-32.
UPS contends that "[p]roper determination of the reject would have demonstrated
that [it] dnly misclassified 57/375,000 entries during the relevant period - less than
2/100th of one percent." UPS Br. at 30-31. Even considering only entries of
computer pfirts and accessories, UPS reasons, "the 57 allegedly misclassified entries
still constitute less than 1% of the total." Id. at 31.
First of all, that the trial court did not mention the "reject rate" in its opinions
does not mean that it did not consider UPS’s contentions in reaching its decision.
See Louder v.. Dep’t of Homeland Sec., 504 F.3d 1378, 1383 (Fed. Cir. 2007)
(citing Hartman v. Nicholson, 483 F.3d 1311, 1315 (Fed. Cir. 2007) ("’That the
court did not specifically mention the [argument] in its opinion forms no basis for
an assumption that it did not consider [it] ....’"); Carolina Tobacco, 402 F.3d at
26
1350 ("a district court’s failure to discuss an issue does not necessarily establish that
the court did not consider it")) (other citation omitted).
Second, and in any event, UPS failed to proffer any evidence below to
support its contention that the virtually all of its entries were flawless. Although
UPS contends it filed 318,000 error-free entries - or 99.8 percent of the entries it
filed during the relevant time period, id., this statistic is simply misleading because
there is absolutely no evidence in the appeal record upon which to conclude that
318,000 entries were actually free of error.
Indeed, given certain of the trial court’s unchallenged findings, any inference.
of error-free entries by UPS would be unreasonable. The trial court explicitly
recognized that:
UPS submitted unchallenged evidence that it attended
Customs’ training sessions and conducted extensive
training programs,.., that it removed, at least initially,
30.90 from its tariff tape..., that it had a practice of
warehousing merchandise in a ’hold’ area of its facilities
when there was insufficient customs entry documentation,
¯.. and that it tended to. work out troublesome issues with
Customs by way of a partnership relationship ....
558 F. Supp. 2d at 1353-54 (citations omitted). The trial court further
acknowledged that Customs employees had testified that UPS did take some
"responsible steps." Id, at 1354 (citations omitted). Nonetheless, the trial court
found that "none of these activities or practices ceased UPS’s erroneous use of
27
30.90." Id. "The bottom line," the trialcourt continued, "is that UPS fell down on
the job in this instance because it failed to effectively correct the oft-repeated
misclassification errors under 30.90, in accordance with its responsibilities as a
customs broker under 19 U.S.C. § 1641(b)(4)." Id___~.
Thus, even when UPS made concerted efforts to improve its compliance rate,
it still failed to correct its errors. Given this, UPS’s assertion that 99.8 percent of its
entries were error-free during the relevant time period is as irrational as it is entirely
unsupported by any evidence.
III. .The Trial Court Did Not Err In Finding That UPS Committed Multiple
Violations Of Section 1641
UPS also has failed to establish any error in the trial court’s finding that it
committed multiple violations of section 1641 (b)(4). UPS contends that the trial
court "erred by deferring to Customs’ interpretation of 19 U.S.C. § 1641(b)(4) as
allowing a violation of the statute to be premised on a misclassification for a single
entry." UPS Br. at 37. But that is not what the trial court held. Rather, the trial
court held that "the underlying failure by UPS under section 1641 (b)(4) is its failure
to correct repeated misclassifications of merchandise under 30.90, given the
attention Customs had given to the issue and asked of UPS." 558 F. Supp. 2d at
1355-56. The trial court reasonably concluded that "[a] dditional misclassifications
meant that the company continued to fail in exercising responsible control and
28
supervision." Id__~. at 1356. The trial court did not err in noting that UPS was
readinglimitations into the statute that simply do not exist. Id__~.
In asserting the court erred in finding multiple violations, UPS essentially
casts the trial court’s determination that it violated section 1641 (b)(4) as
erroneously premised upon either a single misclassifi~ation, which alone could not
amount to a violation of its duty to exercise responsible supervision and control, or
UPS’s pattern of misclassifications, which, at most, amounts to a single violation.
UPSBr. at 35-37; see also NCBFAA Br. at 10-14. Again, this is not what the trial
court held. The trial court explicitly did not rely upon a "pattern." 558 F. Supp. 2d
at 1355. Rather, the trial court held that the additional misclassifications
represented new failures to exercise responsible supervision and control. Id__~. at
1355-56. The trial court reasoned that "[t]o hold that Customs is limited to issuing
only one penalty in instances like this one where the defendant continually engages
in the same conduct would hamper Customs’ enforcement authority and read.a
restriction into 19 U.S.C, § 1641 that does not exist." Id. at 1356. By distorting the
trial court’s reasoning, UPS does not establish error.
A. The Plain Language Of Section 1641 Does Not Support A Cap
"[W]hen the statute’s language is plain, the sole function of the courts " at
least where the disposition required by the text is not absurd.-- is to enforce it
29
according to its terms." Hartford Underwriters Ins. Co. v. Union Planters Bank,
N.A., 530 U.S. 1, 6 (2000) (internal quotations omitted) (quoting United States v.
Ron Pair Enter., Inc., 489 U.S. 235,241 (1989)) (other citation omitted). Section
1641 (d)(2)(A) provides:
(A) Monetary Penalty
Unless action has been taken under subparagraph (B), the
appropriate customs officer shall serve notice in writing
upon any customs broker to show cause why the broker
should not be subject to a monetary penalty not to exceed
$30,000 in total for a violation or violations of this
section.
19 U.S.C. § 1641 (d)(2)(A). The requirements of section 1641 (d)(2)(A) are clear
and unambiguous: (1) no single monetary penalty may exceed $30,000; and (2)
each monetary penalty must be preceded by written notice (that is, a pre-penalty
notice) corresponding to statutory requirements.
Nothing in the language of section 1641 limits Customs to a single monetary
penalty or an aggregate monetary assessment of $30,000 for all violations
committed prior to the issuance of a penalty notice. Rather, the statute authorizes
Customs to include one or several violations in any given penalty notice.
Consequently, the penalty actions Customs initiated in this case were permissible
under the clear and unambiguous language of section 1641.
30
It is settled that courts give words in a statute their ordinary and natural
meaning. See Lamie v. United States Trustee, 540 U.S. 526, 534 (2004). It is
further settled that courts give effect to every word and clause of a statute, without
rendering any word or phrase superfluous. See Duncan v. Walker,, 533 U.S. 167,
174; Smith v. United States, 508 U.S. 223,229 (1993); McEntee v. Merit Sys.
Protection Bd., 404 F. 3d 1320, 1328 (Fed Cir. 2005).
1.
The Words "Violation Or Violations" Do Not Limit UPS’s
Liabili ,ty To A Single Penalty
UPS contends that "the plain text of the statute makes clear that any penalties
imposed by Customs ’for a violation or violations’ of the statute cannot ’exceed
$30,000 in total.’" UPS Br. at 41; see also NCBFAA Br. at 14 ("even if the broker
committed multiple violations, the aggregate penalty may not exceed $30,000.").
As demonstrated below, however, UPS construes the statute in an ungrammatical
Terms connected by the disjunctive "or" should be read to have separate
meanings or significance. See, e._~., Knutzen v. Eben Ezer Lutheran Hous. Ctr., 815
F.2d 1343, 1349 (10th Cir. 1987) ("use of a disjunctive in a statute generally
indicates alternatives were intended"); United States v. Vicke~, 199 F. Supp. 2d
1363, 1369 (N.D. Ga. 2002) (the word "or" in a statute should be read
"disjunctively"). For each word in the phrase "violation or violations" to have
31
significance, section 1641 (d)(2)(A) must be construed to provide Customs with the
flexibility and discretion to include either a single violation or multiple violations
within any given penalty notice. For this reason, section 1641 (d)(2)(A) does not
limit UPS’s liability to a single monetary penalty for all of its violations, because
this interpretation would preclude Customs from including a single violation within
any given penalty notice, rendering the word "violation" superfluous and
inoperative.
If Congress had intended to limit Customs to a single penalty for all
.violations, it could have excluded the word "violation" as opposed to incorporating
the disjunctive phrase "violation or violations." Or Congress could have
incorporated the phrase "for all violations of this subsection" to achieve the same
result. Or, as the trial court observed, "to clearly arrive at [UPS’s] reading," the
statute might have included language referring to "’~ monetary penalty’" or to
"’any and all violations of this section that occurred prior to the issuance of the prepenal _ty notice.’" 442 F. Supp. 2d at 1308 (emphasis in original). Given that
Congress instead chose to use the phrase "violation or violations," that phrase
should be given its full effect.
32
2.
The Statute Does Not Limit Liabilty To An Aggregate
$30,000 Penalty For Multiple Violations Preceding A PrePenalty Notice
LIPS also contends that the trial court’s rejection of its interpretation of
section 1641 (d)(2)(A) renders the language "in total for a violation or violations of
this subsection" superfluous. LIPS Br. at 41-42. To the contrary, the trial court’s
interpretation of section 1641(d)(2)(A) not only gives meaning to all of its parts, but
is consistent with its structure.
Under the last antecedent rule, a limiting clause or phrase should ordinarily
be read as modifying the noun or phrase that it immediately follows.. See Barnhart
v. Thomas, 540 U.S. 20, 26 (2003). In section 1641(d)(2)(A), the words "in total"
are preceded by the phrase "monetary penalty not to exceed $30,000."
Consequently, the words "monetary penalty not to exceed $30,000 in total for a
violation or violations" demonstrate a clear congressional intent to establish a perpenalty maximum of"$30,000 in total," and not an aggregate monetary limitation
of $30,000 for all violations preceding a pre-penalty notice. The phrase "in total"
modifies "$30,000," while the phrase "not to exceed $30,000" modifies the words
"monetary penalty." UPS’s construction of section 1641(d)(2)(A) is
ungrammatical.
33
B.
The Trial Court Did Not Err In Deferring To Customs’
Interpretation Of Section 1641(d)(2)(A)
Determining that the language in section 164 l(d)(2)(A) is ambiguous
regarding whether Customs was limited to a single monetary penalty or penalties
totaling $30,000, the court properly considered the second step in the Chevron
analysis of whether an agency’s construction and application of a statute is
permissible and reasonable. 558 F. Supp. 2d at 1355; 442 F. Supp. 2d at 1308. The
trial court examined Customs’ interpretation of section 164 l(d)(2)(A), which is
embodied in the regulations of 19 C.F.R. § 111.91 and the mitigation guidelines.
Noting that the regulations had been subject to notice and comment, the court
affirmed that section 111.91 was entitled to full Chevron deference. 442 F. Supp.
2d at 1309; see also Cathedral Candle Co., 400 F.3d at 1362. Moreover, the trial
court correctly noted that while the mitigation, guidelines were not subject to notice
and comment, they are "still entitled to some deference, since [they are] a
permissible construction of the statute." 442 F. Supp. 2d at 1309 (citing Reno v.
Koran, 515 U.S. 50, 61 (1995)).
Applying the Chevron step two analysis, the trial court held section 111.91
and the mitigation guidelines "express a reasonable interpretation of the broker
penalty statute." Id_~. L~S contends that section 111.91 also limits Customs to an
aggregate monetary penalty of $30,000. UPS Br. at 46; see also NCBFAA Br. at
34
16-17. It emphasizes that the regulation provides that "Customs may assess a
monetary penalty or penalties.., in an amount not to exceed an aggregate of
$30,000 for one or more of the sections set forth in §§ 111.53(a) through (f)." UPS
Br. at 46 (quoting 19 C.F.R. § 111.91) (emphasis added by UPS).
Although UPS maintains that "the regulation cannot be sensibly read any
other way," id., it ignores the plain language of the regulation. As with the
statutory language of section 1641(d)(2)(A), the disjunctive "or" is used in the
phrase "penalty or penalties" in section 111.91. This disjunctive phrase allows
Customs to Choose to assess a single penalty or multiple penalties for a broker’s
violations, provided that no single penalty exceeds the $30,000 per penalty cap as
mandated by the statutory text of section 1641 (d)(2)(A). Moreover, as the trial
court noted, "Customs clarified its position in the mitigation guidelines, which state
that Customs may penalize a broker ’a maximum of $30,000 for any violation or
violations of the statute in any one penalty notice." 442 F. Supp. 2d at 1309
(quoting 19 C.F.R. Pt. 171, App. C., XII(A)) (emphasis added by trial Court).
Notwithstandingl UPS contends that the Government’s interpretation
contradicts the agency’ s prior interpretations. UPS Br. at 48- 50 (citing. Ricci;Lee
v. United States, 329 F.3d 817 (Fed. Cir. 2003)). UPS simply notes that both cases
involved $30,000 aggregate penalties and insists that the trial court inadequately
35
distinguished them from this case. See id. But the trial court deemed these cases
inapposite because they involved violations discovered during an audit, and
Customs’ mitigation guidelines specifically limit Customs to an aggregate penalty
of $30,000 for all violations discovered during an audit. 442 F. Supp. 2d at 1311
(citing 19 C.F.R. Pt. 171, App. C, XXII(c)). UPS contends.that that the trial court
erroneously used this as a basis to distinguish Lee and Ricci because neither case
specifically referenced the audit provision in the guidelines. See UPS Br. at 49.
UPS does not deny, however, that the mitigation guidelines contain an audit
provision that applied in those two cases.
At best, UPS suggests that Customs was acting heedless of the audit
provision in its own mitigation guidelines in Lee and Ricci, and applied a limit for
reasons unrelated to the audit provision. To the contrary, "Government officials are
presumed to do their duty, and one who contends they have not done so must
establish that defect by ’clear evidence.’" Carolina Tobacco, 402 F.3d at 1350
(citations omitted). UPS failed to present any evidence, much less "clear evidence,"
that Customs was deliberately ignoring its own dispositive mitigation guidelines in
Lee and Ricci.
UPS further contends that the trial court erroneously deferred to the
mitigation guidelines, relying exclusively upon the court’s quotation of Reno v.
36
Kora)~, 515 U.S. 50, 61 (1995). UPS Br. at 52. Although UPS contends that the
trial court relied"upon a sentence fragment, taken out of context," and that Reno,
has been superseded by Mead, id__~, at 52-53, the trial court accurately quoted Reno,
442 F. Supp. 2d at 1309, which remains viable precedent~ As this Court explained
in Cathedral Candle, after Mead was issued:
In other cases, the Court has described the range of
deference encompassed within the Skidmore standard in
varying ways. It has noted that "reasonable" agency
interpretations carry "at least some added persuasive
force," Metro. Stevedore Co. v. Rambo, 521 U.S. 121,
136... (1997), that "some deference" must be accorded
to an agency’s interpretative rule even if the rule is not
entitled to full Chevron deference, Reno[, 515 U.S. at 61],
that "some weight" is due to informal agency
interpretations of statutory provisions, though not the
"same deference as norms that derive from the exercise of
¯.. delegated lawmaldng powers," Martin v.
Occupational Safe _ty & Health Review Comm’n, 499 U.S.
144, 157... (1991), and that such interpretations are
entitled to respect,’ Christensen v. Harris County, 529
U.S; 576, 587 (2000); Wash. State Dep’t of Soc.& Health
Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371,
385... (2003).
Cathedral Candle, 400 F.3d at 1366.
Thus, UPS’s insistence that the trial court afforded full Chevron deference to
the mitigation guidelines is incorrect. See UPS Br. at 52-55. The trial court merely
stated that the guidelines are entitled to ’"some deference.’" 442 F. Supp. 2d at
37
1309 (quoting Reno v. Koray, 515 U.S. at 61). The trial court’s consideration of
the guidelines is fully consistent with Mead and Skidmore.
As the Court in Mead stated, some level of deference under Skidmore is
appropriate "where the regulatory scheme is highly detailed and Customs can bring
the benefit of specialized experience to bear on the subtle questions of the case."
533 U.S. at 237. Here, the trial court did not rely exclusively upon the mitigation
guidelines in upholding Customs’ statutory interpretation. Rather, it merely
concluded that the mitigation guidelines were entitled to "some deference" as part
of the detailed regulatory scheme that also included 19 C.F.R. § 111.91, which is
entitled to full deference. 442 F. Supp. 2d at 1309. Accordingly, UPS has failed to
demonstrate that the trial court committed any error.
¯C.
To The Extent Relevant, Legislative History Confirms That UPS’s
Liability, Is Not Capped
In its 2006 opinion, the trial court graciously expressed appreciation of
amicus curiae NCBFAA’s interest in this matter, but it recognized that "’the
testimony of witnesses before congressional committees prior to passage of
legislation is generally weak evidence of legislative intent.’" 442 F. Supp. 2d at
1310 (quoting Public Citizen v. Farm Credit Admin., 938 F.2d 290, 292 (D.C: Cir.
1991)); see also id. (quoting Exxon Mobil Corp.v. Allapattah Serv., Inc., 545 U.S.
546, 125 S. Ct. 2611, 2626 (2005)). Accordingly, although the trial court correctly
38
did not rely upon the legislative history of the Trade and Tariff Act of 1984,
contrary to UPS’s assertions, see UPS Br. at 43 n. 12, the legislative history
unequivocally supports Customs’ application of its penalty authority under section
1641(d)(2)(a).
Among other reasons, Congress authorized Customs to assess monetary
penalties against customs brokers as a means to provide the agency with greater
flexibility to control the activities of customs brokers, and to avoid whenever
possible, the harsh consequences of license suspension and revocation. S. Rep. No.
308, 98th Cong., 2d Sess. 72-73, reprinted in 1984 U.S. Code Cong. & Admin.
News 4910, 5031-32.
UPS recognizes that passage of the Trade and Tariff Act of 1984 occurred
after years of collaboration and compromise. UPS Br. at 43. Senator Baucus, a
sponsor of the customs broker amendments within the Trade and Tariff Act of
1984, referred to the act as a "compromise bill," in which "there.were many
disagreements along the way [to] ... a revised system." 130 Cong. Rec. Sll, 497
(daily ed. Sept. 19, 1984) (statement of Sen. Baucus); Miscellaneous Tariff and
Trade Bills, June 21, 1984: Hearings on 573 Before the Subcomm. On Trade of the
House Ways and Means Comm., 98th Cong., 2d Sess. 620 (1984) (oral statement of
Robert P. Schaffer, Assistant Comm’r for Commercial Operations, former U.S.
39
Customs Service) ("The proposed legislation which is before you represents in
large measure that agreed-upon solution. Unfortunately, there are several areas
where we simply have not reached full agreement.").
For its part, Customs understood that it possessed the discretion to assess
monetary penalties when regulating and controlling broker misconduct. Id. at
621-622 (prepared written statement of Robert P. Schaffer, Assistant Comm’r for
Commercial Operations, former U.S. Customs Service) ("The provision for
monetary penalties gives Customs a more flexible disciplinary instrument, which
can be applied without the risk of unforeseen severe damage to a broker’s
livelihood which is out-of-proportion to the offense committed.") (emphasis
added).
As part of the prepared written statement submitted at the time of its
president’s oral testimony, NCBFAA wrote an "Analysis of Provisions," which told
Congress the following regarding section 1641 (d)(2):
Section [ 1 ] 64 l(d) sets forth disciplinary procedures
against customs brokers, and contemplates imposition of
civil monetary penalties, or suspension or revocation of
licenses or permits, but not both.. Under present law, the
Secretary’s power to impose sanctions against a broker is
limited to suspension or revocation of the license.
Because even a short license suspension may effectively
terminate a brokerage business, it is highly desirable that
the secretary be given power to impose monetary_
40
penalties as an alternative of lesser severi _W, where he
finds such punishment appropriate.
Section [ 1 ]641 (d)(2)(A) sets forth procedures for the
imposition of monetary penalties (which, as stated above,
can only be imposed as an alternative to revocation or
suspension of a license or permit). These procedures
essentially parallel those under § 592 of the Tariff Act (19
U.S.C. 1592) [for importers of merchandise]...
The first sentence of [19 U.S.C..§ 11641(d)(2)(a) specifies
a $30,000 maximum penalty. This maximum amount is
intended to apply to all violations committed prior to the
date of issue of notice under this provision.
Id__~. at 659 (prepared written statement of William St. John, President, W.R. Zanes &
Co., former President, NCBFAA).
By declining to heed the NCBFAA’s statement and to incorporate similar
language within subsection 164 l(d)(2)(A), Congress rejected any mandate that
Customs assess a single monetary penalty or aggregate monetary assessment of
$30,000 for all broker violations preceding the issuance of a pre-penalty notice.
D.
Other Penalty Provisions Undermine Any Congressional Intent To
Limit Liability To A Single Or Aggregate $30,000 Penalty For All
Prior Violations
Comparing the monetary penalty authority provided under section
1641 (d)(2)(A) with two additional penalty provisions within 19 U.S.C. § 1641, UPS
contends that only subsection (d)(2)(A) contains language limiting the aggregate
penalty amount that Customs may assess. UPS Br. at 43-44. It adds that where
"Congress includes particular language in one section of a statute but omits it in
another section of the same Act, it is presumed that Congress acts intentionally and
purposefully in the’ disparate inclusion or exclusion." Id__~. (citing Duncan v. Walker,
533 U.S. 167, 173 (2001)). As demonstrated below, UPS’s comparison of these
two provisions is unavailing.
The first section upon which UPS relies pertains to license revocation and
suspension proceedings and provides:
B) Revocation or suspension
The Customs Service may, for good and sufficient reason,
serve notice in writing upon any customs broker to show
cause .why a license or permit issued under this section
should not be revoked or suspended. The notice shall be
in the form of a statement specifically setting forth the
grounds of the complaint... The. Secretary will issue a
written decision, based solely on the record, setting forth
the findings of fact and the reasons for the decision. Such
decision may provide for the sanction contained in the
notice to show cause-or any lesser sanction authorized by
this subsection, including a monetary_ penal .ty not to
exceed $30,000, than was contained in the notice to show
cause.
19 U.S.C. § 1641(d)(2)(B) (emphasis added). UPS contends that "[t]he
presumption that Congress ’act[ed] intentionally and purposely in the disparate
inclusion’ of the language in subsection (d)(2)(A), Duncan, 533 U.S. at 174, is
particularly appropriate where, as here, the subsections otherwise use identical
language and are directly adjacent to one another." UPS Br. at 44.
42
That Congress did not use language in the license suspension!revocation
provision, or section 1641 (d)(2)(B), identical to that in the monetary penalty
provision under section 1641 (d)(2)(A), is of no moment. First, section
1641 (d)(2)(B) provides for license revocation or suspension, not for monetary
penalties. Further, section 1641 (d)(2)(B) provides only that Customs may
alternatively issue a monetary penalty not exceeding $30,000 for infractions
prompting license revocation or suspension. This provision Simply does not
address the scope of Customs’ monetary penalty authority under section
1641(d)(2)(A).
UPS also relies upon .19 U.S.C. § 1641(b)(6), which authorizes Customs to
assess monetary penalties against persons transacting customs business without a
license, as follows:
(6) Prohibited acts.
Any person who intentionally transacts customs business,
other than solely on the behalf of that person, without
holding a valid customs broker’s license granted to that
person under this subsection shall be liable to the United
States for a monetary_ penal .ty not to exceed $10,000 for
each such transaction as well as for each violation of any
other provision of this gection. This penalty shall be
assessed in the same manner and under the same
procedures as the monetary penalties provided for in
subsection (d)(2)(A) of this section.
43
19 U.S.C. § 1641(b)(6) (2000) (emphasis added). According to UPS, because this
section expressly allows Customs to issue a penalty for each transaction or violation
without expressly limiting the total number of penalties or total monetary
assessment that may be imposed by Customs, the exclusion of identical language
within section 1641 (d)(2)(A) indicates congressional intent to limit both the total
number of penalties and aggregate dollar amount of penalties that may be assessed
pursuant to section 1641 (d)(2)(A). See UPS Br. at 45.
UPS’s assertions are, again, without merit. First, section 1641 (b)(6)
addresses non-brokers, whereas section 1641 (d)(2)(A) addresses licensed customs
brokers. Second, neither section 1641 (b)(6) nor section 1641 (d)(2)(A) specifies a
limit upon the number of penalties or the aggregate monetary assessment that
Customs may impose. Finally, the requirement under section 1641 (b)(6) that
Customs issue a single monetary penalty for each transaction or violation contrasts
significantly with section 1641 (d)(2)(A), which allows Customs to assess a
monetary penalty for a single violation or multiple violations. This flexibility
undermines UPS’s assertions.
Moreover, the various penalty provisions within 19 U.S.C. § 1641 address
violations of varying degrees of severity. For this reason, these discrete and distinct
penalty provisions do not operate in the same way and cannot be viewed similarly
44
because the language of each provision is tailored to address the severity of a
specific type of violation.
E.
The Trial Court Correctly Held That UPS’s "Parade Of
Horribles" Is Without Basis
LIPS posits that rejection of its proffered construction of section
1641 (d)(2)(A) would remove any barrier to the assessment of penalties totaling
¯$1,800,000. See L~S Br. at 55. The trial court reasonably agreed with us that
UPS’s "’parade ofhorribles’ is without bases." 442 F. Supp. 2d at 1309. The very
absence of penalties of that magnitude undermines UPS’s fears. Cf. id. ("Customs
has not taken advantage of or abused the penalty authority the agency was granted
in the broker statute."). Indeed, the statutory requirements, implementing
regulations, and mitigation guidelines provide safeguards against the imposition of
excessive penalties.
When a monetary penalty is contemplated, section 1641 (d)(2)(A) requires
issuance of a notice to show cause why a penalty should not be assessed. See 19
U.S.C. § 1641(d)(2)(A); 19 C.F.R § 111(E). Customs must then evaluate the merits
of a penalty case if a petition for relief is submitted by a customs broker. Id__~.
Moreover, ifa customs broker refuses to pay an assessed penalty, the only method
by which Customs can seek recovery of an unpaid penalty, is through a judicial
enforcement action in the Court of International Trade. Through this process, a
45
customs broker has a statutory right to de novo judicial review of an assessed
penalty. See Ricci, 985 F. Supp. at 127 (trial court applies de novo standard of
review when determining whether penalty is warranted and.penalty amount is
appropriate). Within this framework, the discretion of Customs personnel is
controlled, not unfettered. See 19 C.F.R: §§111.91, 111.53(a)-(f).
Relying upon Securities and Exchange Commission v. Sloan, 436 U.S. 103
(1978), UPS asserts that afflrmance of the judgment below would "wholly
eviscerate[] the limited grant of authority Congress intended to bestow upon
Customs." UPS Br. at 58. UPS’s reliance upon Sloan is misplaced.
In Sloan, the Supreme Court rejected the Securities and Exchange
Commission’s ("SEC’s") interpretation of a statutory grant to "summarily...
suspend trading in any security.., for a period not exceeding ten days," as
tantamount to a statutory grant to indefinitely suspend trading every ten days absent
a hearing or other procedural safeguards. 436 U.S. at 1708-09. The Court
determined that explicit language within the Securities and Exchange Act of 1934
demonstrated that the authority to summarily suspend trading in any security was
intended as a device to allow the SEC to take emergency action for 10 days while it
prepares to implement more formal statutory remedies. I& at 1710.
46
Sloan is inapposite for several reasons. First, section 1641 (d)(2)(A) concerns
the authority to assess penalties, not the authority to summarily suspend a party’s
business transactions as in Sloan. Second, in Sloan, the Court rejected the SEC’s
interpretation because it provided no procedural safeguards. Id__~. at 1709 ("In light
of the explicit congressional recognition in other sections of the Act,... that any
long-term sanctions or any continuation of summary restrictions must be
accompanied by notice and an opportunity to hearing, it is difficult to read the
silence in § 12(k) as an authorization for an extension of summary restrictions
without such a hearing, as the Commission contends."). Here, in contrast,
Customs’ authority to assess monetary penalties under section 1641 (d)(2)(A)
carries extensive procedural safeguards, which include an administrative petition
process and de novo judicial review of assessed penalties. Therefore, section
!641(d)(2)(A) is not analogous to the regulation at .issue in Sloan, rendering Sloan
inapposite.
F.
UPS’s Purported Liability Cap Would Hinder Effective Customs
Law Enforcement
UPS further contends that its interpretation of section 1641 (d)(2)(A) would
not hinder the effective enforcement of custorias laws because Customs may impose
additional penalties and "utilize other tools at its disposal." UPS Br. at 56.
Contrary to UPS’s assertion, UPS’s interpretation of section 1641(d)(2)(A) would
47
not only impair Customs’ enforcement efforts, but would also effectively eviscerate
the monetary penalty authority that Congress granted to Customs with respect to
customs brokers. Pursuant to 19 C.F.R. § 111.19, customs brokers may operate at
multiple ports of entry nationwide. The operations of a customs broker are
primarily regulated and monitored by the Customs personnel assigned at each port
of entry. These oversight responsibilities include both the administration and
enforcement of Customs’ monetary penalty authority. See 19 C.F.R. §§ 111.92,
111.95; 19 C.F.R. Pt. 171, App. C.
I~S, like many customs brokers, conducts its customs operations nationwide.
at numerous ports of entry. Under UPS’s interpretation of section 1641 (d)(2)(A), if
a customs broker commits violations at more than one port of entry, a single prepenalty notice would be required for all preceding violations committed nationwide.
This mandate would apply regardless of the type of violations involved, or their
geographic scope, thus impeding the effective enforcement of the customs laws.
For example, for specified violations, the mitigation guidelines suggest a $30,000
penalty for each violation committed. However, if a customs broker rePeatedly
committed one of these serious violations prior to the issuance of a pre-penalty
notice, Customs would be limited to a single $30,000 penalty. Moreover, for
violations committed concurrently, if some violations require further investigation
48
while others do not, a penalty action on all violations would be delayed pending
resolution of all investigatory efforts, and regardless of the duration of an
investigation.
UPS’s statutory construction also would reward customs brokers committing
frequent or geographically dispersed violations, as well as those successfully
concealing violations until after a minor penalty assessment. Under these
circumstances, no matter how serious, frequent, well-concealed, or geographically
dispersed the violations are, Customs always would be limited to a single monetary
penalty or aggregate monetary assessment of $30,000. That is, under UPS’s
reasoning, once Customs issues a penalty, the broker would be immune from being
penalized for any violation that pre-dated, but was not included in, the penalty
notice.
Indeed, under UPS’s construction of section 164 l(d)(2)(A), issuance of a
$30,000 penalty for some, but not all, violations occurring prior to the issuance of a
pre-penalty notice, would limit Customs to license suspension or revocation for
non-penalized infractions. This result would destroy the flexibility that Congress
provided to Customs in the Trade and Tariff Act of 1984 and negate Customs’
ability to effectively employ the less stringent measure of monetary penalties. See
Miscellaneous Tariff and Trade Bills, June 21, 1984: Hearings on 573 Before the
49
Subcomm. On Trade of the House Wags and Means Comm., 98th Cong., 2d Sess..
620, 621-22 (1984) (prepared written statement of Robert P. Schaffer, Assistant
Comm’r for Commercial Operations, former U.S. Customs Service). Under these
circumstances, UPS’s construction would remove the very option that customs
brokers sought to obtain, and Congress intended to provide, as an alternative to
license suspension or revocation. Id___~.
IV.
The Trial Court Did Not Err In Finding That UPS Misclassified Certain
Merchandise Under The HTSUS
Finally, belying its claims that it had made strenuous efforts to follow
Customs’ training for proper classification, UPS Br. at 7-10, 31-33, UPS contends
that Customs trained brokers to use the wrong classifications. Moreover, without
filing timely protest pursuant to 19 U.S.C. §§ 1514, 1515, UPS now maintains that
the trial court erroneously interpreted HTSUS 8473.30.9000. UPS Br. at 17-23. As
we demonstrate below, none of UPS’s contentions is availing.
Judicial review of Customs’ tariff classifications involves a two-step process.
Bausch & Lomb, Inc. v. United States, 148 Fi3d 1363, 1364 (Fed. Cir. 1998). The
. trial court "first, construe[s] the relevant classification headings; and second,.
determine[s] under which of the properly construed tariff terms the merchandise
falls." Id__~. (citing Universal Elecs., Inc., v. United States, 112 F.3d 488, 491 (Fed.
50
Cir. 1997)). "The first step of construing the tariff classification terms is
denominated as a question of law, while the second step is, under the usual iteration
of the rule, referred to as a factual inquiry." Id__~. "In reviewing classification
determinations, Customs’ classification of imported merchandise is presumed to be
correct and the burden is on a party challenging the classification to overcome the
presumption." Marcel Watch Co. v. United States’i 11 F.3d 1054, 1056 (Fed. Cir.
1993) (citing Hasbro Indus., Inc. v. United States, 879 F.2d 838, 840 (Fed. Cir.
1989)).
UPS principally contends that the subheading divides automated data
processing parts based upon whether the part belongs to a computer that includes a
cathode ray tube. UPS Br. at 16. It claims that the trial court should have
interpreted the subheadings "not incorporating a cathode ray tube" and "other" as
modifying the phrase "machines of heading 8471" rather than the superior
subheading "parts and accessories." Id__~. at 19.
The trial court correctly rejected "UPS’s preferred construction of the tariff,
however, [as] in conflict with the plain language, grammar, punctuation, and
organization of subheading 8473.30.9000." 558 F. Supp. 2d at 1348. As the court
observed, the phrase "of machines of heading 8471" is a prepositional phrase
modifying the phrase "parts and accessories." Id__~. Accordingly, if the phrase "not
51
incorporating a cathode ray tube" were read as modifying "of machines of heading
8471," it would not be offset by paragraph structure, indented, and separated by
punctuation. Id__~.
Consequently, as the trial court reasonably concluded, the prepositional
phrase "of machines of heading 8471" modifies the phrase "parts and headings,"
and "not incorporating a cathode ray tube" and "other" are alternative subheadings
also modifying "parts and accessories." Id. This is the most reasonable reading of
subheading 8473.30, whereas UPS’s ,’untenable" reading renders the punctuation
useless. See id. at 1349. In reaching its common sense interpretation, the trial court
emphasized that "[i]n construing tariff terms, ’[it] may rely upon its own
understanding, dictionaries and other reliable sources.’" Id. at 1348 n. 18 (citing
Medline Indus. Inc. v. United States, 62 F.3d 1407, 1409 (Fed. Cir.. 1995)) (other
citation omitted).
UPS contends that the subheadings under heading 8471 divide items based
upon whether the machines of which they are a part contain cathode ray tubes. UPS
Br. at 19. UPS’s reading ignores the contextual differences that distinguish these
headings. Heading 8471 refers to automated data processing .machines themselves,
whereas heading 8473 refers to parts and accessories of machines listed under
headings 8469 to 8472. Accordingly, the trial court correctly concluded that
52
subheadings under 8471 are divided according to whether the machines contain
cathode ray tubes, and subheadings under 8473 are divided according to whether
the parts or accessories contain cathode ray tubes. UPS does not establish any error
in this logical reading.
UPS also relies upon "Additional U.S. Note 2" to support its tariff heading
interpretation.. UPS Br. at 19; A194. It misconstrues this note, however, by
interpreting it as suggesting that "the same. printer parts may be classified under
either" HTSUS 8473.30.30 or HTSUS 8473.30.60. UPS Br. at 19-20 (emphasis in
original). In fact, the same printer parts may not properly be classified under either
subheading. As Customs import specialist Karl. Moosbrugger explained at trial,
.parts under HTSUS 8473.30.30 do not incorporate a cathode ray tube, whereas
parts under HTSUS 8473.30.60 do incorporate a cathode ray tube. A485. UPS’s
interpretation would render this distinction meaningless and result in identical or
interchangeable subheadings.
Finally, UPS seizes upon the International Trade Commission’s ("ITC’s")
statement in its antidumping investigation of computer dynamic random access
memory ("DRAM") semiconductor modules that these modules, which do not
contain a cathode ray tube, could be provided for in subheadings 8473.30.10
through 8473.30.90. UPS Br. at20 (citing Drams of One Megabit and AboVe From
53
Taiwan, 64 Fed. Reg. 32,521, 32,521 (Int’l Trade Comm’n June 17, 1999)). But as
Import Specialist Moosbrugger explained, the ITC has not taken issue with
Customs’ interpretation that whether a module containing a DRAM would be
classified under subheadings 8473.30.10 to 8473.30.50 versus 8473.30.60 to
8473.30.90 turns on whether the part or accessory containing the DRAM contains a
cathode ray tube. A479-80.
Although UPS insists that a DRAM’s lack of a cathode ray tube establishes
conclusively that parts or accessories under HTSUS 8473.30.90 are not required to
contain cathode ray tubes, UPS Br. at 20, it overlooks that the inquiry "is all driven
by the facts." A4801 ADRAM alone would not be classified under subheading
8473 at all, unless it was incorporated into a part or accessory of an automated data
processing machine; rather, a DRAM alone would be classified as an integrated
circuit under subheading 8542. Id.
In sum, UPS has failed to establish any error in the trial court’s interpretation
of the HTSUS.
54
CONCLUSION
For these reasons, the United States respectfully requests that this Court
affirm the judgment below.
Respectfully submitted,
GREGORY G. KATSAS
Assistant Attorney General
OF COUNSEL:
COURTNEY E. SHEEHAN
Attorney
Commercial Litigation Branch
Civil Division
Department of Justice
~E. DAVIDSON’/L,~
Director
EDWARD M. GREENWALD
Attorney
Office of the Associate Chief Counsel
U.S. Customs & Border Protection
U.S. Department of Homeland Security
Chicago, Illinois
P~cCARTHY
Assistant Director
Commercial Litigation Branch
Civil Division
Department of Justice
.1100 L Street, N.W.
Washington, D.C. 20530
Tel: (202) 307-0164
November 6, 2008
Attorneys for Plaintiff-Appellee
55
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