Ford Motor Co. v. U.S.

• Decision Date: 12 April 2002
• Docket Number: No. 01-1052.,01-1052.
• Citation: 286 F.3d 1335
• Parties: FORD MOTOR COMPANY, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1335

286 F.3d 1335

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

No. 01-1052.

United States Court of Appeals, Federal Circuit.

April 12, 2002.

Charles J. Cooper, Cooper, Carvin & Rosenthal, PLLC, of Washington, DC, argued for plaintiff-appellant. With him on the brief was David H. Thompson. Of counsel on the brief were Steven H. Becker, Paul A. Horowitz, and Scott D. Shauf, Coudert Brothers, of New York, NY. With them on the brief was Paul Vandevert, Ford Motor Company, of Dearborn, MI.

Amy M. Rubin, Attorney, Civil Division, Commercial Litigation Branch, Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Stuart E. Schiffer, Deputy Assistant Attorney General, and David M. Cohen, Director. Of counsel on the brief was Sheryl A. French, General Attorney, Office of Assistant Chief Counsel, United States Customs Service, of New York, NY.

Before RADER, SCHALL, and BRYSON, Circuit Judges.

Opinion for the court filed by Circuit Judge SCHALL. Dissenting opinion filed by Circuit Judge BRYSON.

SCHALL, Circuit Judge.

Ford Motor Company ("Ford") appeals the final decision of the United States Court of International Trade that sustained the denial, by the United States Customs Service ("Customs"), of Ford's protest concerning the liquidation of certain entries of merchandise. Ford Motor Co. v. United States, 116 F.Supp.2d 1214 (Ct. Int'l Trade 2000) ("Ford II"). In its decision, which followed a trial, the court held that Customs' three extensions, under 19 U.S.C. § 1504(b),¹ of the one-year time period for liquidating the entries under 19 U.S.C. § 1504(a) were legally permissible. The court rejected Ford's contention that the extensions were unreasonable and that consequently the entries were "deemed liquidated" pursuant to section 1504(a) at the rate of duty asserted by Ford upon entry between December of 1985 and February of 1986, rather than at the rate of duty determined by Customs in December of 1989. Because we conclude that Ford established at trial that Customs' delay in liquidating the entries was unreasonable, we reverse and remand the case to the Court of International Trade for entry of judgment in favor of Ford.

BACKGROUND

I.

The relevant facts are set forth in our previous opinion in this case, Ford Motor Co. v. United States, 157 F.3d 849 (Fed. Cir.1998) ("Ford I"). They are as follows:

Ford operates an assembly plant in Louisville, Kentucky, at which it manufactures both cars and trucks using imported foreign engines and transmissions. See Ford I, 157 F.3d at 852. In 1983, Ford applied to establish a Foreign Trade Subzone ("FTSZ") at the plant, pursuant to 15 C.F.R. §§ 400.600-603.² Ford's application was approved, and an FTSZ was established at the Louisville plant. The Louisville FTSZ operated between November of 1985 and February of 1986. Ford I, 157 F.3d at 853.

An FTSZ is an area inside the United States that may receive treatment under the Customs laws as a territory outside the United States. See generally, 15 C.F.R. § 400.1(c) (2000). At an FTSZ, an importer has the "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." Ford I, 157 F.3d at 852; see also Armco Steel Corp. v. Stans, 431 F.2d 779, 782 (2d Cir.1970).

During the relevant time period, the duty rate published in the Tariff Schedules of the United States for cars imported into the United States was 2.6% ad valorem, while the duty rate for imported trucks was 25% ad valorem. The duty rate for engines and transmissions for both cars and trucks was 3.3%. Under these circumstances, the optimal exploitative strategy for Ford was to import engines and transmissions into the Louisville FTSZ, and then segregate those utilized to assemble cars from those utilized to assemble trucks. Ford planned to treat the segregated car parts as "foreign merchandise" (viewing the plant as being on foreign soil). It then would pay the 2.6% duty on the emerging "imported" car. At the same time, Ford planned to treat the segregated truck parts as "domestic merchandise" (viewing the plant as being on United States soil). It then would pay the 3.3% duty rate on the "imported" engines and transmissions, thereby avoiding the 25% duty rate for completed trucks.

Regulations that were in effect required that Ford conduct its FTSZ operations in a certain 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 ("214 form"). See 19 C.F.R. § 146.12(a). To designate merchandise as either "non-privileged foreign" or "privileged domestic," the importer checks a box on the 214 form that is labeled with the corresponding designation. See 19 C.F.R. §§ 146.31, 146.32.

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); see also 19 C.F.R. § 146.23. Thus, Ford could defer payment of duties on car transmissions and engines until it had installed them in completed cars. In that way, Ford could capture the duty rate for cars (2.6%) rather than car parts (3.3%). Duties for "foreign domestic" merchandise, however, are due and payable upon entry of the merchandise into the FTSZ. See 19 C.F.R. § 146.22(a); see also 19 C.F.R. § 146.44. Thus, the regulations required that Ford pay the duty on engines and transmissions to be installed in trucks as they entered the FTSZ. In short, in order to operate the Louisville FTSZ in accordance with the applicable regulations, Ford had to determine and designate the future usage of each part. Then, based on that usage, Ford had to identify the correct FTSZ status for the part and make duty payments at the proper time.

During the three months it operated the FTSZ at its Louisville plant, Ford received eleven entries of merchandise from abroad. The merchandise consisted of transmissions and engines that Ford used in the manufacturing of vehicles. Apparently through error, however, Ford made incorrect entries with respect to the merchandise on the required 214 forms. Specifically, Ford's agent at the Louisville FTSZ designated each transmission and engine in the eleven entries it received at the FTSZ between December of 1985 and February of 1986, including those labeled as truck parts, as "non-privileged foreign." Consequently, to the extent it intended to treat any of the entries as "privileged domestic," Ford failed to pay duties associated with these parts, as required by the governing regulations. See 19 C.F.R. § 146.22; Ford I, 157 F.3d at 853. Ford's 214 forms also were "replete with errors" regarding product descriptions, duty rates, and tariff item numbers. Ford II, 116 F.Supp.2d at 1218.

Ford reported its 214 form error to Customs. As a result of Ford's failure to designate the engines and transmissions destined for trucks as "privileged domestic," and therefore pay the applicable 3.3% ad valorem duty rate upon entry of the parts into the FTSZ, Customs asserted that the parts exited the FTSZ (and thus entered the United States) as parts of completed trucks and were thus subject to a 25% ad valorem duty. Ford I, 157 F.3d at 853.

In due course, Customs Agent Richard McNally began an investigation to determine the proper amount of duty that was due. In July of 1986, McNally prepared an initial internal report in which he concluded that the designations in Ford's 214 forms "had been improper, that the proper duty rate on the truck parts was 25%, and that Ford owed approximately $5.3 million in additional duties." Id. at 854. Further, citing the "significant amount of duty involved," McNally referred the case to Customs' Office of Enforcement/Investigation for a possible fraud investigation. Ford II, 116 F.Supp.2d at 1218. In August of 1986, pursuant to 19 U.S.C. § 1592,³ Customs initiated a civil fraud investigation, which continued until at least March of 1990.

Pursuant to 19 U.S.C. § 1504(a), an entry of merchandise that is not liquidated within one year of the date of entry is deemed liquidated at the rate of duty asserted upon entry by the importer, unless the period for liquidation is extended under 19 U.S.C. § 1504(b). On the basis of the ongoing fraud investigation, Customs issued three one-year extensions of the statutory one-year liquidation deadline. The extensions were issued on or about October 22, 1986, mid-to-late October of 1987, and October 18, 1988. Ford II, 116 F.Supp.2d at 1219 n. 3. Eventually, on December 1, 1989, Customs liquidated the eleven entries with a 25% duty on all parts asserted to be truck parts in the entries. The total additional duty amounted to approximately $5.3 million. Ford I, 157 F.3d at 854. It appears from the record that Customs completed its fraud investigation around March of 1990. Id.

Ford timely protested the liquidations, contending, inter alia, that the eleven entries of engines and transmissions were deemed liquidated by operation of law at the rate asserted on importation, which (as far as the parts asserted to be truck parts were concerned) was 3.3%. Ford argued that Customs had not shown that "information needed for the proper appraisement or classification of the merchandise [was] not available to the appropriate customs officer" to justify the three extensions under 19 U.S.C. § 1504(b)(1). After Customs denied the protest, Ford paid the assessed duties and initiated an action in the Court of International Trade to challenge the liquidations pursuant to 28 U.S.C. § 1581(a). Ford I, 157 F.3d at 854. On cross-motions for summary judgment, the court rejected Ford's claim, holding that, as a matter of law, the ongoing fraud investigation justified Customs' issuance of...