Ford Motor Co. v. U.S.

• Decision Date: 14 September 1998
• Docket Number: No. 98-1066,98-1066
• Citation: 157 F.3d 849
• Parties: FORD MOTOR COMPANY, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 849

157 F.3d 849

FORD MOTOR COMPANY, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 98-1066.

United States Court of Appeals, Federal Circuit.

Sept. 14, 1998.

R. Ted Cruz, Cooper, Carvin & Rosenthal, PLLC, Washington, DC, argued, for plaintiff-appellant. With him on the brief was Charles J. Cooper. Of counsel on the brief were C. Harry Gibson, Ford Motor Company, Dearborn, MI, and S. Richard Shostak, Stein, Shostak, Shostak & O'Hara, Los Angeles, CA.

Amy M. Rubin, Civil Division, Commercial Litigation Branch, International Trade Field Office, New York City, argued, for defendant-appellee. With her on the brief were Frank W. Hunger, Assistant Attorney General, David M. Cohen, Director, U.S. Department of Justice, Washington, DC, Joseph I. Liebman, Attorney in Charge, International Trade Field Office. Of counsel on the brief was Sheryl A. French, Office of Assistant Chief Counsel, International Trade Litigation, U.S. Customs Service, New York City.

Before MAYER, Chief Judge, and LOURIE and RADER, Circuit Judges.

RADER, Circuit Judge.

On summary judgment, the United States Court of International Trade upheld the United States Customs Service's (Customs') liquidation of duties on truck parts imported from one of Ford Motor Corporation's (Ford's) foreign trade subzones (FTSZs). See 979 F.Supp. 874 (Ct. Int'l Trade 1997). Because genuine issues of material fact prevent a determination of whether Customs abused its discretion in extending the time for liquidation, and whether Ford in fact committed a correctable "clerical error" under 19 U.S.C. § 1520(c)(1), this court vacates and remands.

I.

For several years, Ford has manufactured cars (Bronco IIs) and trucks (Rangers) at its Louisville, Kentucky assembly plant. Ford has always imported foreign engines and transmissions for those cars and trucks. In the early 1980s, the separate subheadings of the Tariff Schedules of the United States (the TSUS) for engines and transmissions coincidentally set the duty rate for both imports at 3.3% ad valorem. ¹ Notably, many--if not all--of the imported engines or transmissions fit interchangeably in either a car or a truck.

During the relevant times for this case, the duty rate for a completed car was lower than the engine and transmission duties--only 2.6%. The duty rate for a completed truck was much higher--25%. Consequently, in 1983, Ford applied to establish an FTSZ at its Louisville assembly plant. An FTSZ--though located on United States soil--receives treatment under the Customs laws as a territory outside of the United States. See generally 15 C.F.R. § 400.1(c) (1992). At an FTSZ, an importer "has a choice of paying duties either at the rate applicable to the foreign material in its condition as admitted into a zone, or if used in manufacturing or processing, to the emerging product." Id.; see also Armco Steel Corp. v. Stans, 431 F.2d 779, 782 (2d Cir.1970). Thus, by making its Louisville plant an FTSZ, Ford could pay the duty rate of 2.6% (for completed cars) on the imported engines and transmissions for cars, and could continue paying the duty rate of 3.3% on the imported parts for trucks. Ford estimated savings of about $15,000 per week at Louisville from this legal procedure. The parties do not dispute that this was Ford's objective.

To qualify for this treatment, however, regulations required Ford to conduct its operations in a specific manner. First, it had to identify each part entering the Louisville FTSZ as either a car part or a truck part. Ford then had to designate all car parts as "non-privileged foreign" merchandise and all truck parts as "privileged domestic" merchandise on a Customs Form 214 ("a CF214"). An importer completes this form for every piece of foreign merchandise as it enters an FTSZ. See 19 C.F.R. § 146.12(a), (c)(1) (1985). To designate merchandise as either "non-privileged foreign" or "privileged domestic," the importer simply checks a box labeled with the corresponding designation. An importer must then handle designated merchandise within the FTSZ according to regulations. See 19 C.F.R. §§ 146.31, 146.32 (1985).

Duties on "non-privileged foreign" merchandise are not due and payable until the merchandise leaves the FTSZ. See 19 C.F.R. § 146.48(e) (1985); see also 19 C.F.R. § 146.23 (1985). Thus, Ford could defer payment of duties on the car parts until it had assembled them into completed cars--and thereby capture the rate for cars, rather than car parts. Duties for "privileged domestic" merchandise, on the other hand, are due and payable upon entry into the FTSZ. See 19 C.F.R. § 146.22(a) (1985); see also 19 C.F.R. § 146.44 (1985). Thus, the regulations required Ford to pay the duty on truck parts as they entered the FTSZ. For either of these two designations, payment must accompany Customs Form 7501 ("CF7501"), which identifies merchandise entering the commerce of the United States. See 19 C.F.R. §§ 143.12, 143.15 (1985). Thus, to successfully operate the Louisville FTSZ, Ford had to determine and designate the future usage of each part, and then, based on that usage, identify the correct FTSZ status and pay duty payments at the proper time. Ford also had to keep track of which parts had been given which designation--at least until they had properly been put into a car or a truck.

Ford assigned Mr. Elma D. ("Moe") Tullock to perform these tasks at the Louisville FTSZ. At various times, he carried the title "FTSZ Coordinator," "Foreign Trade Zone Representative," "Customs Representative," and "Foreign Trade Zone Agent." In this position, Tullock filled out the forms and forwarded them with appropriate payment to Customs officials. He also kept track of the parts and their designations at the plant. A document identified as a manual for operating the Louisville FTSZ provides the following job description:

The responsibility of the Ford FTZ Representative will be to coordinate the entire Ford Subzone operation to ensure that all internal operating procedures are completely satisfied and the required reports are presented to the U.S. Customs Service, Customs Broker and Department of Commerce on a timely basis....

The parties dispute whether it was also Tullock's job to decide which parts would be placed in trucks and which in cars. Customs argues Tullock decided whether a given shipment of parts would be used for cars or for trucks. Ford asserts that Tullock's production supervisors decided the use of the parts and Tullock only placed the designations he received from supervisors in the proper paperwork. Ford, however, emphasizes that this factual dispute is immaterial to the outcome of this case. As it turns out, Ford is correct that this dispute is immaterial.

The parties also dispute to what extent Ford gave Tullock binding instructions on his FTSZ responsibilities. Ford contends that it gave Tullock, in writing, specific, and unambiguous, binding instructions: For every car part entering the FTSZ, Tullock was to check the "non-privileged foreign" box on a CF214, and, after the car was assembled, complete CF7501 and pay a 2.6% duty. For every truck part arriving at the FTSZ, he was to check the "privileged domestic" box on a CF214, and immediately complete CF7501 and pay a 3.3% duty. Customs, on the other hand, charges that Ford left Tullock, an employee with no prior FTSZ experience, virtually unsupervised with no binding instructions. Customs contends that it was Tullock's responsibility to decide how to implement the FTSZ regulations--at least in day-to-day operations--to carry out Ford's broad objective.

Ford activated the Louisville FTSZ in November 1985, but shut it down less than three months later. In that short time, the Louisville FTSZ produced and shipped eleven shipments of cars and trucks. Each shipment was a separate Customs entry. For each entry, Tullock had prepared and submitted CF7501 forms. Each form described the entering parts as "transmissions for trucks," "transmissions for autos," "engines for trucks," or "engines for autos." Moreover, each form asserted a 2.6% rate for the car parts and a 3.3% rate for the truck parts. However, the record shows that none of the CF214s had classified any of these parts as "privileged domestic" upon arrival at the FTSZ. Instead, every one of the nearly one hundred CF214s had consistently designated all of the entering engines and transmissions as "non-privileged foreign," even though the CF214s identified many of the engines and transmissions as engines or transmissions "for trucks." Tullock signed all of the CF7501s. ²

The record does not show which truck parts on the CF214s correspond to the truck parts listed on the CF7501s. Nevertheless, both parties agree that Ford did not pay the 3.3% duty on truck parts listed on the CF7501s until after those parts had been assembled into trucks. In other words, Tullock had listed in the CF7501s truck parts that had already been assembled into trucks. Thus, Tullock had made two mistakes on truck parts: (1) he designated them as "non-privileged foreign" instead of "privileged domestic," and (2) he did not pay the 3.3% duty at the proper time.

When Ford shut the FTSZ down in February 1986, Customs asserted that Ford owed the 25% duty on all truck parts, because they had been designated "non-privileged foreign," no duty had been paid on them when they entered the FTSZ, and they had exited the FTSZ as parts of completed trucks. Customs began an investigation into the proper amount of duty. Mr. Richard McNally, the Customs agent in charge of the investigation, discovered that four of the entries also contained some merchandise classified as TSUS Item 807.00 ("American goods returned"). McNally felt that this classification was probably incorrect. He also raised questions about the quantities, values, and TSUS classifications for the truck and car parts, as well as whether Tullock had performed simple calculations correctly. Tullock's supervisors...